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FAR MC > F7 > Flashcards

F7 Flashcards

1
Q

Defined Contribution Plan

A

ER contributions determined by a formula

401K

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2
Q

Defined Benefit Plan

A

EE benefits determined by a formula

Pension

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3
Q

For pensions do pension expense = amount funded (paid) to the plan?

A

No! Not typically

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4
Q

Noncontributory

A

EEs are not required to contribute to the plan

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5
Q

Contributory

A

EEs required to contribute to the plan

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6
Q

Funded pension plan

A

Money is already at the trust waiting to be distributed to EEs of the pension plan

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7
Q

Unfunded pension plan

A

Promise from ER to pay pension benefits, but just a promise only

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8
Q

Overfunded

A

More money in the plan than required (plan assets exceed plan liabilities)

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9
Q

PBO

A

Projected Benefit Oblgation (uses future compensation levels - guess)

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10
Q

ABO

A

Accumulated Benefit Obligation (uses past / current compensation levels)

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11
Q

ABO vs PBO

A

ABO uses past / current salary levels and PBO uses future (guess) salary levels

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12
Q

DBO

A

Defined benefit obligation

IFRS

PBO equivalent for IFRS

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13
Q

IFRS equivalent to PBO

A

DBO

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14
Q

Vesting for pension plans - how?

A

Reach retirement age and / or meet unique special requirements

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15
Q

If a person leaves to work for another employer after vesting - are they still vested!

A

Yes, retired or not, they will still be vested

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16
Q

Pension Service Cost

A

Present value of all pension benefits earned by company EEs in the current year

Increases the PBO

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17
Q

Interest cost for pension plans increases what?

A

PBO because it raises the value of the obligation closer to the maturity value

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18
Q

What does pension service cost increase?

A

The PBO

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19
Q

Prior service costs

Pension

A

EEs grandfathered in for service previously rendered or

Subsequent plan amendment reflecting new or increased benefits applying to service already provided

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20
Q

Actuarial gains and losses

A

Gains or losses that occur due to actuarial adjustments

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21
Q

Benefit payments

A 
PBO (down)
        Plan assets (down)

(Payout to retired and working EEs)

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22
Q

Is service cost a pension cost?

A

Well no - it’s presented separately in the compensation

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23
Q

Pension costs

A

I RAGE

Interest cost
(Return on Plan Assets)
Amortization of Prior Service Cost
(Gains) and Losses
amortization of Existing net obligation or net asset
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24
Q

AGE

A

AOCI Pension costs unamortized

Amortization of prior service cost
(Gains) and losses
Existing net obligation or net asset

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25
Q

Projected Benefit Obligation increases with

A

+ Service Cost
+ Interest Cost
+ Prior service cost from current plan amendments
+ Actuarial losses incurred in current period

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26
Q

Projected Benefit Obligation decreases with

A

Actuarial gains in current period

Benefits paid to retirees

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27
Q

Pension plan assets increase how

A

+ Contributions

+ Actual returns on plan assets

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28
Q

Pension plan assets decrease how

A

Benefits paid to retirees

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29
Q

SIR

A

Service cost
Interest cost
less (Return on plan assets)

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30
Q

Prior service cost under GAAP JE

A

OCI

PBO

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31
Q

Prior service cost under IFRS JE

A

IS - service cost
DBO

Expense immediately

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32
Q

How do pensions account for gains

A

Two ways:

  1. Actual return to IS
  2. Difference between expected and actual return to OCI and amortized using the corridor approach
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33
Q

What is the corridor approach

A

Gains / losses at beginning of the year exceeding 10% of plan assets or PBO are amortized by the average remaining service life

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34
Q

How is interest cost calculated for PBO

A

Beginning of period PBO
x Discount Rate
= Interest cost

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35
Q

Which discount to use for pension interest cost? Prime or market?

A

Neither, use rate provided by actuary

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36
Q

Prior service cost is amortized over

A

Average remaining service life

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37
Q

Existing net obligation or net asset

A

Pension Obligation less plan assets amortized over the GREATER of 15 years or average EE job life

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38
Q

How do gains affect net period pension cost

A

They decrease it

Both the R and the G of SIR AGE

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39
Q

Interest cost calculation for pension

A

Beg PBO * discount rate

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40
Q

Service cost is measured using the

A

Project plan obligation

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41
Q

Net transition asset amortized into what?

A

Gain

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42
Q

Net transition liability amortized into what?

A

A loss

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43
Q

Overfunded pension asset is what kind of asset?

A

Always non-current

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44
Q

Underfunded pension plan is what kind of liability?

A

Must be split between current and no current

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45
Q

ER obligation for postretirement health benefits is expected to be fully accrued for an employee by the date the

A

EE is fully eligible for benefits

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46
Q

Attribution period

A

Date EE starts til date of full eligibility (vesting)

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47
Q

Measurement date for funded status

A

BS date at year end

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48
Q

Difference between public and non public disclosures for pension benefits

A

Non public does not require reconciliations

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49
Q

If pension plan is a liability how to find current from non current

A

Current is expected benefit payments in 12 months over fair value of plan assets

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50
Q

If funded status is negative and FV of plan assets is greater than expected benefit payments next year, what is the current liability?

A

Zero. FV of plan assets can cover the liability next year

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51
Q

What cost is unique to post retirement benefit plans?

A

Per capita claims

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52
Q

The funded status of a defined benefit plan is reported in which financial statement

A

Statement of financial position / BS

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53
Q

If you have two pension plans, one overfunded and one underfunded, do you net them into one non-current asset or one liability or split the overfunded and underfunded portions?

A

Split them, will report non-current asset and liability

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54
Q

For a defined benefit plan, what should be reported as a liability?

A

The unfunded projected Benefit Obligation (funded status if negative)

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55
Q

IFRS remeasurement of defined benefit obligation is determined how?

A

Actuarial gains / losses unrecognized

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56
Q

GAAP vs IFRS difference in OCI for pension plans

A

IFRS: Prior service costs expenses immediately and remeasurement adjustments are NOT amortized

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57
Q

Where does service cost appear on the income statement?

A

Compensation cost in income from operations

58
Q

Where does net period pension cost appear on the income statement?

A

Other gains / losses

59
Q

Statement of

Net assets available for benefits

A

BS - Asset

60
Q

Statement of

Changes in net assets for benefits

A

IS

61
Q

Statement of

Accumulated plan benefits

A

BS - Liabilities

62
Q

Statement of

Changes in accumulated plan benefits

A

Changes in liabilities

63
Q

Net assets available

A

Assets

64
Q

Accumulated Plan Benefits

A

Liabilities

65
Q

Financial statements required for a defined contribution pension plan

A

401K

Statements of:

Net assets available for benefits
Changes in net assets available for benefits

66
Q

Statement of net assets available categories

A

FV assets
Receivables
Cash - bookend of assets
Less: Liabilities

67
Q

Footnote disclosures in the financials statements for PENSIONS do NOT require what?

A

The differences between executive and non-executive plans

68
Q

How should Plan investments be presented on defined benefit plan’s financials?

A

Fair value

69
Q

Which financial statement may be prepared but is NOT required for defined benefit and defined contribution plans?

A

Statement of cash flows

70
Q

What is NOT shown on the defined benefit plan’s financials that is shown on the company’s financials

A

Funded status and net period pension cost

71
Q

Capital stock

A

Amount that must be retained by the corporation for the protection of creditors

72
Q

Common stock pros and cons

A

Pros: control / ownership / preemptive rights

Cons: last in line upon liquidation, no guaranteed dividends or assets

73
Q

Book value per common share

A

Measures amount that common shareholders would receive per share upon liquidation (according to the recorded book value)

74
Q

Common Shareholders Equity is calculated how?

A

Net assets - preferred stock outstanding - cumulative preferred dividends in arrears

75
Q

How to calc common stock outstanding

A

Issued less repurchases

76
Q

How to solve participating preferred stock problems?

A

Share equally (capital stock * %) then pro rata

77
Q

Legal capital

A

Capital stock

78
Q

RE

A

Accumulated earnings (or losses) during life of corporation that have NOT been paid out as dividends

79
Q

If retained earnings has a negative balance it is called

A

A deficit

80
Q

How to calc ending retained earnings

A 
Beg RE
- Dividends DECLARED
\+/- Prior period adjustments
\+/- Accounting changes reported retrospectively 
End RE
81
Q

What kind of dividends are NOT on the statement of cash flow?

A

Property or Stock dividend, they aren’t on statement of cash flows because they aren’t cash

82
Q

Difference between Cost and legal / par method for treasury stock

A

Timing of gain / loss

Cost - upon reissuance
Legal / par - immediately

83
Q

Does treasury stock gain / loss ever affect IS or RE

A

IS - no

RE - will never go up, but may be reduced if there is a loss in excess of APIC

84
Q

Retirement of stock, cost vs par method

A

Cost - DR CS, APIC for original issuance amount pro rats and the retained earnings or APIC - TS is a plug

Par - DR CS and TS @ par

85
Q

Cost method treasury stock

A

Similar to buying an asset. Carry at cost and then recognize gain / loss on sale.

Retirement involves reversing CS and APIC for the issuance price (pro-rata) then plugging RE or APIC for the difference between TS and the issuance

86
Q

Par value method for treasury stock

A

Treasury stock is carried at par, issuance APIC is reversed (pro rate) and any gain or loss is a plug to equal the cash received. The plug account could be APIC - TS or RE (loss)

Gain / Loss is determined repurchase vs issuance price

All other entries CR Treasury Stock and APIC for the difference

87
Q

Donated stock’s effect on balance sheet

A

No net effect, increases equity (donated Treasury Stock) and decreases equity by same amount (donated APIC)

Recorded @ FV

88
Q

JE to record sale of donated treasury stock

A

Cash
Donated Treasury Stock

APIC plugs the difference in sales price vs book value of the donated treasury stock

89
Q

If the state of incorporation has laws that protect the treasury stock from dilution, how does that affect a stock split?

A

Stock split will also affect treasury stock

90
Q

Be careful gains and losses refer only to

A

Income statement transactions and never refer to treasury stock transactions

91
Q

Adjustments to RE

A

+ Net Income (net of tax)
+ Prior period adjustments (net of tax)
+ Restatements due to change in accounting principle
- Dividends Declared

92
Q

How is common stock reported in the equity section

A

Issued at par and NOT decreased by treasury stock transactions

93
Q

How does Treasury Stock affect book value per share?

A

Generally it increases because the denominator decreases (increasing the value)

94
Q

Rule for a basket purchase or sale of convertible preferred stock

A

Allocate based on relative fair market values (FMV / basket purchase price)

95
Q

What is the purpose of appropriating retained Earnings?

A

Restrict earnings available for dividends

96
Q

Cumulative vs noncumulative preferred stock

A

Cumulative receiver Dividends in arrears before common stockholders are paid

97
Q

Participating preferred stock

A

Share equal, then pro rata

98
Q

Stock subscriptions Receivable is what kind of account?

A

Contra-equity unless collected as a subsequent event in which case it may be an asset

99
Q

Services traded for stock, the stock is recorded at

A

FMV of stock

100
Q

Dividend

A

Distribution of earnings

NOT ON IS

101
Q

Who approves a dividend?

A

The board of directors

102
Q

Date of record

A

Date board of directors does roll call for dividends. No journal entry

103
Q

Are Dividends paid on treasury stock?

A

No - only outstanding shares

104
Q

Scrip dividends

A

Basically the same thing as a regular dividend except instead of crediting dividends payable, credit notes payable. Might even accrue interest.

Done when there is a cash shortage

105
Q

How are Dividends presented for IFRS and GAAP on financials?

A

Same for both

On the face or in the notes presented as dividends per share for each class

106
Q

Small stock dividend threshold

A

<20-25%

107
Q

Small stock dividend effect on stockholders equity

A

No effect, capitalizes RE

108
Q

Small stock dividend reduces RE by

A

FMV

B/c to small to have effect on the market price

109
Q

Large stock dividend threshold

A

> 20-25%

110
Q

Large stock dividend reduces RE by

A

Par

111
Q

JE for large stock dividend

A

At declaration:

Retained Earnings
Common stock distributable

At distribution:

Common stock distributable
Capital stock

112
Q

Statement of Changes in Stockholders Equity

GAAP vs IFRS

A

Primary financial statement for IFRS and SEC public ally traded companies

NOT required by GAAP (could be presented in the notes). Required by SEC though

113
Q

Stock compensation question, what should for first thought be?

A

Under 20%? Small, FMV

Over 25%? Large, par

114
Q

When you see Non-compensatory stock option / purchase plan, what should you think?

A

No compensation expense

115
Q

Noncompensatory plan requirements

A

Offered to all EEs equally for a limited time and at a reasonable discount

116
Q

IFRS vs GAAP noncompensatory vs compensatory plans

A

All stock purchase plans are compensatory under IFRS

117
Q

Grant date

A

Date option is used, no JE yet

118
Q

Compensatory Stock options expire JE

A

APIC - stock options

APIC - stock options expired

119
Q

Stock appreciation rights

A

EE gets paid the difference of FMV over a specified price at grant date. Service cost is estimated and credits a liability.

120
Q

How much is RE adjusted for in a property dividend?

A

Debited (reduced) by the FMV of the property

121
Q

Do treasury stock transactions affect CS?

A

Only if par value method -or- retiring shares

That’s b/c par value method = retire shares then reissue

122
Q

Redeemable preferred stock

A

Issuing corporation has option to call the stock at a specified strike price

123
Q

What JE is recorded for stock rights?

A

Only record when exercised

124
Q

What date is a property dividend adjusted for FMV?

A

Declaration date

125
Q

What distribution to stockholders is NOT considered an asset or capital distribution?

A

Stock split / stock dividends

126
Q

After all nominal accounts are closed what is the affect on retained earnings?

A

The FV decrease is netted against the gain / loss from the income statement, resulting in an impact equal to the carrying amount of the property

127
Q

If a property dividend is declared and the property is stock, how to calc gain or loss?

A

Difference in FMV of shares vs book price * # of shares being declared

128
Q

For a stock subscription, when is APIC increased?

A

On recording date

129
Q

For the investor, are stock dividends recorded at FMV or book value?

A

Neither - not considered income

130
Q

Carrying value of stock rights

A

FMV of stock rights / (FMV of stock rights + FMV of stock Ex-rights) * cost of stock

131
Q

Which day is a public entity required to measure cost of employee services in exchange for an award of equity interested based on the FMV of the award?

A

date of grant

132
Q

When compensatory stock options are redeemed, by how much will APIC increase?

A

Cash received
+ total compensation expense
- Par value of stock
= APIC

Visualize the JE

Cash
APIC - stock options
CS
APIC

133
Q

How much will SE increase as a result of the exercise of stock options?

A

The strike price * notional amount

CS + APIC - (APIC stock options) = notional amount

134
Q

If the expected rate of return is used for pension cost and the actual rate decreases, how does that affect pension cost this year?

A

It won’t. It will affect pension cost next year as it is amortized

135
Q

If plan is overfunded at beg of the year, is PBO still used for net pension period cost ?

A

No, use pension benefit asset account - do not use PBO even if the plan is underfunded by the end of the year.

Even though plan assets and actual PBO will differ from the balance created by this JE. In this case you have two separate books

136
Q

When calculating PBO ending balance, what to watch out for?

A

Return on plan assets technically affects the plan assets account and not PBO.

Also decrease by benefits paid

137
Q

Equity for land, record the land at what?

A

Always value at consideration given. For equity it would be FMV

138
Q

How are stock dividends factored into WACSO?

A

They are retroactively applied

139
Q

WACSO

A

Weighted Average Common Stock Outstanding

140
Q

Donated stock is measured / recorded at

A

Fair value

141
Q

Are Dividends shown on the IS?

A

No

FAR MC (10 decks)

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