FAR Flashcards
(85 cards)
What are the components of other comprehensive income?
Pension adjustments
Unrealized gains and losses (available for sale debt securities and hedges)
Foreign currency items (translation adjustments and specific LT transactions)
Instrument specific credit risk (liabilities booked at fair value)
What is the calculation for comprehensive income and how can it be reported?
Comprehensive income = Net income + Other comprehensive income.
There is a single statement approach where the statement of comprehensive income follows the income statement. This method starts with revenues and is a single continuous statement.
Multi-statement approach where the statement of comprehensive income is separate from the income statement. The statement of comprehensive income immediately follows the income statement. This method starts with net income.
When is a foreign currency transaction gain reported for a payable?
A gain is recognized when the value of the foreign currency depreciates or the domestic currency appreciates. This means it takes less of the domestic currency to satisfy the purchase agreement. Example. The spot rate is 1.25 USD/EUR at the date of purchase of €1,000. On the payment date the spot rate is 1.20 USD/EUR. The amount of USD required to satisfy the purchase went from $1,250 to $1,200.
When is a foreign currency transaction loss reported for a payable?
A loss is recognized when the value of the foreign currency appreciates or the domestic currency depreciates. This means it takes more of the domestic currency to satisfy the purchase agreement. Example. The spot rate is 1.20 USD/EUR at the date of purchase of €1,000. On the payment date the spot rate is 1.25 USD/EUR. The amount of USD required to satisfy the purchase went from $1,200 to $1,250.
When is a foreign currency transaction gain reported for a receivable?
A gain is recognized when the value of the foreign currency appreciates or domestic currency depreciates. This means it takes more of the domestic currency to satisfy the purchase agreement. Example. The spot rate is 1.20 USD/EUR at the date of purchase of €1,000. On the payment date the spot rate is 1.25 USD/EUR. The amount of USD required to satisfy the purchase went from $1,200 to $1,250.
When is a foreign currency transaction loss reported for a receivable?
A loss is recognized when the value of the foreign currency depreciates or the domestic currency appreciates. This means it takes less of the domestic currency to satisfy the purchase agreement. Example. The spot rate is 1.25 USD/EUR at the date of purchase of €1,000. On the payment date the spot rate is 1.20 USD/EUR. The amount of USD required to satisfy the purchase went from $1,250 to $1,200.
What are the required disclosures for other comprehensive income?
The tax effects of each component, either as part of the statement or in the notes.
The changes in the accumulated balances of each component.
Total accumulated other comprehensive income in the balance sheet as an item of equity.
Reclassification adjustments.
When is a component or group of components reported as discontinued and what conditions must be present?
A component or group of components is discontinued if it represents a strategic shift that will have a major effect on the entity, and if the following is true:
- Has been disposed
- Is classified as held for sale
What types of foreign currency gains and losses are included in other comprehensive income?
Foreign currency TRANSLATION gains and losses.
Explain the three types of SEC registrants? How long do they have to file form 10-K and form 10-Q?
Large accelerate filers - issuer with $700 million market cap as of the second most recently completed fiscal quarter. 60 days to file 10-K and 40 days for 10-Q.
Accelerated filer - issuer with market cap ranging from $75 million to $700 million and annual revenue of $100 million or more. 75 days to file 10-K and 40 days for 10-Q.
Smaller reporting companies - entities with annual revenues less than $100 million. 90 days to file 10-K and 45 days for 10-Q.
What is the calculation for cumulative preferred dividends?
Cumulative preferred dividends = Number of preferred shares outstanding x Par value per share x Rate
What is the formula for basic EPS?
Basic EPS = Income available to common shareholders / Weighted average number of common shares outstanding (WACSO)
What is required to be reported on form 8-K?
Major events:
- corporate asset acquisitions and disposals
- accountant changes
- financial statement changes
- management changes
- changes in securities
- bankruptcy
- changes in fiscal year
- changes to bylaws/articles of incorporation
When determining diluted EPS, are any potential anti dilutive or anti dilutive events considered?
No, ONLY events that are dilutive in nature are considered in the calculation of diluted EPS.
However, potential anti dilutive events are required to be disclosed in the notes to the financial statements. This is because in the future, these could be dilutive events.
What events affect the number of common stock outstanding and how are they treated?
Common stock dividends, stock splits, and reverse stock splits:
- treated as if the event occurred at the beginning of the period
- retroactively adjust all periods presented if occurs after the end of the period but before financials are issued.
Additional shares issued, reacquired shares, and options and warrants:
- time weighted for the period they were outstanding.
Convertible bonds and convertible preferred stock:
- time weighted, if issued during the period assume stock issued at that date.
What is the EPS reporting requirements for simple capital structure?
Basic EPS for income from continuing operations and net income.
*and for discontinued operations, if applicable.
What are the EPS reporting requirements for complex capital structure?
Basic and diluted EPS for income from continuing operations and net income.
*and for discontinued operations, if applicable.
What are the four EPS disclosures?
Reconciliation of income available to shareholders and WACSO between basic and diluted EPS for continuing operations.
The effect of preferred dividends in arriving at income available to common shareholders in basic EPS.
Securities that could potentially dilute basic EPS in the future but not included currently because they were anti dilutive.
Description of any transaction that occurred after the period end that would have materially affected the number of or potential number of common shares outstanding.
When are convertible options and warrants dilutive?
Average market price > Exercise price.
How do you compute additional shares for options and similar instruments?
Number of shares - (# of shares x Exercise price) / average market price
How are contingent shares treated for basic EPS?
In basic EPS, contingent shares are included as of the date all conditions have been satisfied. The amounts are treated on a time-weighted basis for computation of WACSO.
What is legal capital?
The amount of capital that must be retained by the corporation for the protection of creditors. The par or stated value of both preferred and common stock is legal stock or capital stock.
What is common stock? What rights do common shareholders have?
Common stock is the basic ownership interest in a corporation. Common shareholders bear the greatest risk of loss and receive the greatest benefits of success. Common shareholders have the right to vote, the right to share in the earnings of the corporation, and the right to share in the assets of the corporation upon liquidation after creditors and preferred shareholders are made whole.
What is preferred stock? What are the benefits and rights of preferred stock?
Preferred stock is stock that has preferences and features not associated with common stock. Preferred shareholders do not have the right to vote. Preferred shareholders have the second claim to the assets of a corporation upon liquidation (after creditors). Preferred stock may have preferences relating to dividends.
