F8

Question 1

How is basic EPS calculated?

Answer 1

Income available to c/s SH’s / W.a # of c/s outstanding

Question 2

What does it mean if an entity has a simple capital structure?

Answer 2

Only common stock outstanding.

No warrants, options, etc.

Question 3

Where is EPS shown in the financials?

Answer 3

Face of the income statement.

Question 4

What is the income available to common shareholders when calculating EPS?

Answer 4

Net income - Preferred Dividends

Question 5

What is the income available to common shareholders when calculating EPS?

Answer 5

Net income - Preferred Dividends

Question 6

What does the weighted average # of common shares outstanding mean?

How is it calculated?

Answer 6

of shares changes throughout the year due to repurchase of shares, issuing new shares, and stock splits. You need to weight the amount of shares held at each point the # of shares outstanding changes, then come up with the w.a during the whole year.

Total shares X Period outstanding for = #
Total shares X Period outstanding for = #
Total shares X Period outstanding for = #

= # + # + #

Question 7

What is unique about stock splits when it comes to calculating EPS?

Answer 7

Retroactive treatment of shares outstanding.

If I have 1,000,000 shares outstanding in the beginning of the year, and have a 2 for 1 stock split in the middle of the year, I’ll pretend I had 2,000,000 the whole time.

Question 8

Where is Diluted EPS shown in the financial statements?

Answer 8

On the face of the income statement.

Question 9

How is diluted EPS calculated?

Answer 9

Income available to c/s SH’s + Int. on dilutive securities / W.a # of c/s outstanding (assuming the what if factor)

**What if factor is assuming all dilutive securities are converted to common stock.

Question 10

How do you know if something is dilutive or anti-dilutive?

Answer 10

Dilutive only if the average price > strike price

*“In the money”

**Otherwise it would not be exercised.

Question 11

What kind of activity belongs in the operating section of the Statement of cash flows?

Answer 11

Core business.

Question 12

What is the correct order of the statement of cash flows under GAAP?

Answer 12

1. ) Operating
2. ) Investing
3. ) Financing

Question 13

What kind of activity belongs in the investing section of the Statement of Cash flows?

Answer 13

Buying / selling non-current assets.

Question 14

What kind of activity belongs in the financing section of the Statement of Cash flows?

Answer 14

Our own debt/equity activity.

**Includes dividends as an outflow

Question 15

What is the end result from performing the direct and indirect methods of the stmt of cash flows?

Answer 15

Cash flow from operations.

*Both get to answer same way, just different ways of getting there

Question 16

Which method for the stmt of cash flows starts with net income and reconciles down to cash flow from operations?

Answer 16

Indirect method (easier).

Question 17

Conceptually, how is the indirect method of the stmt of cash flows calculated?

Answer 17

Reconciliation starting with net income and taking out noncash/nonoperating items.

*Accrual basis to cash flow from operations.

Question 18

When you choose the direct method for stmt of cash flows, what does GAAP require that you do?

Answer 18

Show the indirect method separately as a supplemental schedule.

Question 19

What is a major difference between IFRS & GAAP concerning the statement of cash flows?

Answer 19

GAAP treats interest & divs received as an operating inflow.

IFRS treats as interst & divs as operating or investing or financing

Question 20

Where do changes in cash get reported on the statement of cash flows?

Answer 20

NOT REPORTED.

Question 21

What items are included on a statement of financial position for a NFP entity?

Answer 21

All assets, liab’s, and net assets (equity) are carried on the “balance sheet” of a NFP.

1. ) FA
2. ) LTD

Question 22

What kind of information is shown on a statement of activities for a NFP entity?

Answer 22

The total change in net assets:

1. ) Change in unrestricted
2. ) Change in temp. restricted
3. ) Change in permanently restricted

Question 23

If a contribution is made to a NFP entity with restrictions (either temporary or permanent), when is that recognized as revenue?

Answer 23

In the period received.

Once the restriction is satisfied, reclassify on statement of activities to unrestricted.

Notice there would be no net change to net assets on the reclassification as it’s just going from one category to another.

Question 24

If a NFP entity receives contributions with restrictions, and those restrictions are satisfied in the same period as they are received, how should those contributions be booked?

Answer 24

Record as unrestricted.

Question 25

What is a helpful mnemonic to remember what makes up the net assets section of the statement of financial position for a NFP and also the categories on the statement of activities?

Answer 25

PUT. 1. ) Permanently restricted 2. ) Unrestricted 3. ) Temporarily restricted

Question 26

If you look at the statement of activities for a NFP entity, you'll notice that only the unrestricted column has expenses, why is that?

Answer 26

You can't recognize an expense until it's been released from it's restrictions. If you spend money that was temporarily restricted, it is reclassified to the unrestricted column and recognized as an expense.

Question 27

If a board of directors for a NFP designates funds for a specific purpose, where should the funds be shown on the statement of financial position (balance sheet) ?

Answer 27

Unrestricted, the board can't restrict funds *They can always change their minds.

Question 28

What are the different expense classifications on the statement of activities for a NFP and what kind of expenses are reported in each category/bucket?

Answer 28

1. ) Program Service (Hospital = Patient Care, main purpose) 2. ) Support Service (everything not program services) 3. ) Combined Costs (allocate between Program/Support)

Question 29

When preparing NFP financials, you can't prepare a statement of financial position until you prepare the statement of activities. Why is that?

Answer 29

The statement of activities shows all the changes in unrestricted, permanently restricted, and temporarily restricted net assets. Until you see where those end up at year end, you won't be able to complete the net assets section of the statement of financial position.

Question 30

What method/principle of accounting do NFP entities use?

Answer 30

Full accrual accounting.

Question 31

When is revenue from exchange transactions recognized by a NFP?

Answer 31

When realized & earned (full accrual)

Question 32

When is pledge revenue for a unconditional promise to pay recognized by a NFP?

Answer 32

When the promise is made.

Question 33

When is pledge revenue for a conditional promise to pay recognized by a NFP?

Answer 33

Not recognized until the conditions are met. If the donater gives money in advance on a conditional promise to pay, the JE is: DR: Cash CR: Refundable Advance

Question 34

When are donated services recorded by a NFP?

Answer 34

Usually not recorded unless: 1. ) Create/enhance a nonfinancial asset 2. ) Require specialized skill

Question 35

If a lawyer donates their services to a NFP entity, what is the JE to record the service?

Answer 35

DR: Expense of FV of asset CR: Contributions - unrestricted *Net = no change on income statement

Question 36

Are conditions the same thing as restrictions regarding NFP entities?

Answer 36

No, restrictions are put to either temporary or restricted net assets/revenue. Conditions are made before receiving money, once the conditions are met the NFP gets paid. If a good faith deposit is made prior to the conditions being met, it's booked as a liability.

Question 37

How are donated collection items (works of art or historical treasures) recorded by a NFP?

Answer 37

Not required to be recorded if all met: 1. ) Part of a collection w/ public viewing 2. ) Cared for/preserved by organization 3. ) Policy in place of proceeds reinvestment into other items if sold *If above aren't met, recognize as an asset and revenue. **Same as government

Question 38

When are restricted contributions earned by a NFP entity?

Answer 38

When the money is spent on what is was restricted for. *Spent = Earned.

Question 39

What is an example of a permanently restricted net asset?

Answer 39

Endowment fund of $25 million of which the principal can never be spent, but the earnings can be. Earnings can be restricted or unrestricted.

Question 40

Regarding NFP entities, what does it mean to be interrelated?

Answer 40

Both: 1. ) Ability to influence 2. ) Economic interest

Question 41

What does variance power mean regarding NFP's?

Answer 41

Just think "power"

Question 42

A NFP that receives an asset from a resource provider that are not financially related and have no variance power would record the JE as:

Answer 42

DR: Asset (@ FV) CR: Refundable advance liability * NFP acts as an agent (no power or benefit to allocate the assets) * With no variance power, the giver has all the power. With variance power, the NFP can control where the asset goes

Question 43

A NFP that receives an asset from a resource provider that are not financially related and have variance power would record the JE as:

Answer 43

DR: Asset CR: Contribution *NFP acts as agent, but can control where the asset **Expensed when distributed

Question 44

A NFP that receives an asset from a resource provider that are financially related and have/don't have variance power would record the JE as:

Answer 44

DR: Asset CR: Contribution *Expensed when distributed

Question 45

When a NFP is the beneficiary of a contribution that is held by another entity that is not financially interrelated and does not have variance power would make the following JE:

Answer 45

DR: Receivable CR: Contribution (revenue) *Agent can't direct resources elsewhere, ok to record.

Question 46

When a NFP is the beneficiary of a contribution that is held by another entity that is not financially interrelated but does have a beneficial interest would make the following JE:

Answer 46

DR: Beneficial Interest CR: Contribution

Question 47

When a NFP is the beneficiary of a contribution that is held by another entity that is financially interrelated would make the following JE:

Answer 47

DR: Interest in Recipient Net Assets CR: Change in interest in recipient net assets

Question 48

Are works of art & historical treasures depreciated?

Answer 48

NO.

Question 49

Where do losses on permanently restricted funds get booked?

Answer 49

First go to reduce temporarily restricted net assets, then reduce unrestricted net assets if excess.

Question 50

If a NFP entity receives a temporarily restricted contribution in year 1, and the restriction is met in year 2, how much unrestricted revenue should be recognized in year 2?

Answer 50

Zero. Already recognized temporarily restricted revenue in year 1, just reclassify amount in net assets section of statement of financial position to unrestricted.

Question 51

Do NFP's have a statement of cash flows?

Answer 51

Yes - required.

Question 52

How should a NFP entity report investments in it's financial statements?

Answer 52

Fair value with gains & losses reported in the statement of activities for changes in market value.

Question 53

Who prescribes standards and guidance for NFP entities?

Answer 53

FASB.

Question 54

What is the main difference between conditions and restrictions regarding NFP entities?

Answer 54

Conditions: not satisfied by use of resources. Instead, condition must be resolved before the pledge can be recognized as a revenue/receivable. We'll give you the money, but you have to do this first. Can't even record a pledge receivable until you satisfy the condition. Not even a JE until the condition is satisfied. If they give you money before the condition is satisfied, then you need to record a contingent liability until you satisfy it Restriction: satisfied by the NFP by use of the donated resources. We give you the money, and here's how you need to use it (satisfaction of restriction)