F2 - Financial Reporting and Disclosures

Question 1

F2M1

Answer 1

Revenue Recognition

Question 2

5 Step Revenue Recognition Process

Answer 2

ISTAR
1. Identify the contract with the customer
2. Identify Separate performance obligation
3. determine the Transaction Price
4. Allocate the transaction price to the separate performance obligations
5. Recognize the revenue when or as the entity satisfies each performance obligation

Question 3

Bill and Hold Arrangements

For a customer to have obtained control of a product in a bill-and-hold arrangement, ALL of the following criteria must be met:

Answer 3

1. there must be a substantive reason for the arrangement
2. the product has been separately identified as belonging to the customer
3. the product is currently ready for transfer to the customer
4. the entity cannot use the product or direct it to another customer
   Otherwise, revenue is recognized when a good/service is delivered”

Question 4

Revenue is recognized overtime if

Answer 4

services are performed overtime, otherwise it is recognized when all performance obligations are satisfied

Question 5

You recognize the loss when?

Answer 5

immediately, whether you use overtime and point in time.

Question 6

Gross profit Equation in terms of work contracts

Answer 6

1. Find what total cost is
2. Find how much work was done
3. Take contract price and subtract our actual costs
4. Multiply by how much work was done in the year
5. Subtract out recognitions from PY
6. Equals the Gross Profit for CY

Question 7

Long Term Contract % of completion calculation

Answer 7

1. Determine estimated total costs
   total estimated costs = costs incurred to date + estimated costs to complete
2. Determine the annual % completed
   costs incurred to date / estimated total costs
   = percentage completed
3. Determine annual GP if not calculated already
   revenue - estimated cost = GP
4. Determine current year GP
   = (GP * % completed) - any prior year recognitions
5. Determine construction in progress
   current year GP - any prior year recognitions
6. Enter the JE
   DB Construction Expense (total cost to date- py cost)
   DB construction in progress (5.)
   CR Construction Revenue ( Total revenue * % completed this year ) )”

Question 8

When the total consideration for a contract with multiple embedded obligations reflects a discount, the most appropriate way to assign that discount is to:

Answer 8

Assign it equally across all obligations.

Question 9

Revenue Recognition for homes occur

Answer 9

at point in time, at closing date

Question 10

How to figure out current liability at year end for work contracts?

Answer 10

Calculate estimate profit = $9,000,000 ‚ less ($2,000,000 + $6,000,000) = $1,000,000

Percent complete = $2,000,000 / ($2,000,000 + $6,000,000) = 25%

Calculate gross profit earned to date = $1,000,000 * 25% = $250,000”

Question 11

financing arrangement happens when

Answer 11

the repurchase price is equal to or greater than the original sale price and the expected market value.

Question 12

F2M2

Answer 12

Accounting Changes and Error Corrections

Question 13

What is a change in accounting estimate?

What are examples?

Answer 13

it occurs when it is determined that the estimate previously used by the company is incorrect

changes in the lives of fixed assets,
adjustments of year end accrual of officers salaries and or bonuses,
write downs of obsolete inventory
material, nonrecurring IRS adjustments
settlement of litigation
changes in accounting principle that are inseparable from a change in estimate
revision of estimates regarding discontinued operations

Question 14

Change in Accounting estimate is accounted for how… and reported how…

Answer 14

prospectively (current period and future periods)

Reported as a component of income from continuing operations

Question 15

When there is an accounting change…

Answer 15

direct effects would be necessary to restate the FS of prior periods.

If comparative financial statements are presented, the cumulative effect of a change in accouting principle is presented net of tax as an adjustment to beginning RE in the statement of SE

Question 16

What are Changes in Accounting Principle
and what are their effects?

Answer 16

change from one accounting principle to another accepted by GAAP

Direct Effects would be necessary for restatement of prior periods

Question 17

Financial statements of all prior presented should be restated when there is a change in entity such as resulting from

Answer 17

changing companies in consolidated financial statements
or consolidated financial statements versus previous individual financial statements

Question 18

What are considered errors?

Answer 18

Cash basis is not accepted by GAAP therefore an error
Correction of an error from a prior period is a reported as prior period adjustment to retained earnings.

No comparative financial statements, Should be reported net of tax in current RE stmt as an adjustment of opening balance

With comparative statments, prior years are stated and the cum effect should be reflected in carrying amounts of assets and liabs as of beg of year 3

Question 19

Changes in Acc Estimate are reported as

Answer 19

reported As a component of income from continuing operations

Question 20

How to Redetermine Depreciation?

Answer 20

Just take the leftover deprecation and expense it over the remaining years

Question 21

Deprecation Equation

Answer 21

(Cost of PPE - salvage value)/ Useful Life

Question 22

Whenever it is impossible to determine whether a change in accounting estimate or a change in accounting principle has occurred, the change should be considered

Answer 22

a change in estimate.

Question 23

If comparative financial statements are presented and a change of reporting entity has occurred,

Answer 23

all previous financial statements that are presented in the comparative financial statements should be restated.

Question 24

F2M3

Question 25

how to figure out what is the Prior Period Adj

Answer 25

Find out what was expensed and find out what actually needed to be expensed, find the difference

Question 26

F2M4

Answer 26

Notes to Financial Stmts

Question 27

Summary of Significant accounting policies includes disclosures of

Answer 27

measurement bases used in preparing fs and specific accounting principles and methods used: - basis of consideration - depr methods - amort of intangibles - inventory pricing - use of estimates - fiscal year definition - special revenue recognition

Question 28

Should companies duplicate a description of its changes to significant accounting policies?

Answer 28

The company will not duplicate the information provided in this note in later footnotes. Instead the company will present calculations of the inventory and plant asset amounts that reflect the new policies.

Question 29

What are the disclosure requirements related to risks and uncertainties under U.S. GAAP?

Answer 29

disclosure of the use of estimates in the preparation of the financial statements. Disclosure of an entity's major products or services and its principle markets. Disclosure of concentrations when it is reasonably possible that a concentration could cause a severe impact in the near term. Significant estimates should be disclosed when it is reasonably possible (not probable) that the estimate will change in the near term and that the effect of the change will be material. Immaterial items are not disclosed.

Question 30

What should be disclosed in the footnotes to the financial statements?

Answer 30

Material info regarding inv, ppe, and other asset/liab balances changes in SE. Required marketable sec like CV or Unrealized G/L FV estimates Contingency Losses/Gains Contractual obli Pension Plan descriptions segment reporting subsequent events and changes in ACC principle

Question 31

Disclosure of vulnerability to concentration is required if all of the following criteria are met:

Answer 31

The concentration exists as of the financial statement date. The concentration makes the entity vulnerable to the risk of a near-term severe impact. It is at least reasonably possible that the events that could cause a severe impact from the vulnerability will occur in the near term.

Question 32

Disclosures written should not

Answer 32

not mention company names should not explain prior years

Question 33

F2M5

Answer 33

Subsequent Events

Question 34

A subsequent event is... What are the types?

Answer 34

an event that occurs after the balance sheet date but before the FS are issued. They can be a Type 1 recognized or Type 2 unrecognized

Question 35

Type 1 subsequent event is and what must you do

Answer 35

Provides additional info about conditions that already exist on balance sheet. it must be recog and adjust fs

Question 36

Type 2 subsequent event is and what must you do

Answer 36

You dont recognize cause there are new condiitons. If that event is important enough that would make fs misleading then you would disclose it but not recog

Question 37

public companies look at subsequent events when

Answer 37

fs issued

Question 38

private companies look at subsequent events when

Answer 38

when fs is available to be issued

Question 39

Settlement of litigation that arose before bs date and is settled after bs date needs to

Answer 39

be disclosed and accrued

Question 40

Financial statements are considered to be available to be issued when

Answer 40

all approvals for issuance of fs have been received and the fs are in a form and format that comply with GAAP

Question 41

Financial statements are considered to be issued when

Answer 41

The financial statements are in a form and format that comply with GAAP. and The financial statements have been widely distributed to financial statement users

Question 42

The subsequent event evaluation period for a "filer" (an entity that files its financial statements with the SEC) is through

Answer 42

the date that its financial statements are issued

Question 43

The subsequent event evaluation period for a "nonfiler" (an entity that doesn't file its financial statements with the SEC) is through

Answer 43

The date that its financial statements are available to be issued

Question 44

Entities that file financial statements with the SEC are not required to disclose ... What about nonfilers?

Answer 44

the date through which subsequent events have been evaluated. Entities that do not file their financial statements with the SEC are required to disclose both the date through which subsequent events have been evaluated along with whether that date is the date that the financial statements were issued or the date that the financial statements were available to be issued.