FAR 2-5 - Sheet1 Flashcards
(500 cards)
1
Q
Q500. What is a stock dividend?
A
A500. A distribution of the issuing company’s shares to its shareholders in proportion to each investor’s existing holdings.
2
Q
Q501. Why is there no liability recorded for stock dividends?
A
A501. Because stock dividends do not involve a future transfer of assets or a future provision of services.
3
Q
Q502. In essence, what happens with each investor’s holdings as a result of a stock dividend?
A
A502. Each investor simply holds more shares, but each share is worth proportionately less than before the dividend. Each investor maintains the previous ownership percentage.
4
Q
Q503. What does it mean when you receive a 2 for 1 stock distribution?
A
A503. For every 1 share you have, you’ll receive 1 more. You double the shares, but each share is worth 1/2
5
Q
Q504. What are dividends in arrears?
A
A504. Unpaid dividends for a particular year on cumulative preferred stock
6
Q
Q505. What is cumulative preferred stock?
A
A505. Dividends are not required to be paid but are said to accumulate if unpaid. The cumulative feature of preferred stock means in the event of a dividend declaration, preferred shareholders are entitled to be paid the dividends in arrears before any distribution related to the current period occurs.
7
Q
Q506. When can a liability be recognized for dividends in arrears?
A
A506. Only when a dividend is declared
8
Q
Q507. Where are dividends in arrears recorded?
A
A507. In the footnotes
9
Q
Q508. Accrued liabilities are typically related to adjusting entries. To or F
A
A508. True
10
Q
Q509. What are accrued liabilities?
A
A509. They are recorded because of the passage of time or because resource changes have occurred without cash being paid.
11
Q
Q510. Give two examples of accrued liabilities.
A
A510. Wages Payable between the last payday of a fiscal period and the end of the period, and Interest Payable between the last interest payment date of a fiscal period and the end of the period.
12
Q
Q511. The employer serves as a collection point for payroll taxes for the employer and employee and submit them at regular intervals. T or F
A
A511. True
13
Q
Q512. As far as payearoll taxes, what taxes are to be paid by the employee?
A
A512. Federal Income Tax State Income Tax FICA (social security, assessed up to a maximum wage limit.
14
Q
Q513. What are the taxes that are to be paid by the employer?
A
A513. FUTA Federal Unemployment SUTA State Unemployment FICA, equivalent to employee amount Wage limits apply to each of the taxes.
15
Q
Q514. What is the journal entry for the employee’s payearoll tax liabilities?
A
A514. Debit: Sal/Wage Expense Credit: FITP Federal IncTx Pay Credit: SITP State IncTxPay Credit: Fica TP Credit: Cash
16
Q
Q515. What is the journal entry for the employer’s payroll tax liabilities?
A
A515. Debit: Payroll Tax Expense Credit: FUTP Federal UnTx Pay Credit: SUTP State UnTxPay Credit: Fica TP
17
Q
Q516. What is property tax?
A
A516. Tax levied by the local government to support schools and other activities.
18
Q
Q517. When is property recorded in the accounts?
A
A517. When the government levis the tax and makes it payable.
19
Q
Q518. If property tax is payable at the beginning of the fiscal period, describe the accounting treatment.
A
A518. Prepaid Tax is recorded and paid. Then, an expense is recorded each month to recognize the monthly tax being earned.
20
Q
Q519. If property tax is payable at the end of the fiscal period, describe the accounting treatment.
A
A519. Monthly entries would recognize the expense and payable, because throughout the year, it’s not yet due. The expense is recorded as it is earned. At the end of the period, the property tax payable would be closed and the payable would be paid.
21
Q
Q520. What are the journal entries to record property tax when it’s due at the beginning of the year?
A
A520. At the beginning of the period: Debit: Prepaid Property Tax Credit: Cash Monthly: Debit: Prop Tax Expense Credit: Prepaid Prop Tax
22
Q
Q521. What are the journal entries to record property tax when it’s due at the end of the year?
A
A521. Monthly: Debit: Prop Tax Expense Credit: Prop Tax Pay At the end of the period: Debit: Prop Tax Pay Credit: Cash
23
Q
Q522. What are Compensated Absence Liabilities?
A
A522. The accrual of earned vacation and holiday pay.
24
Q
Q523. . SFAS #43 requires that vacation and holiday pay be accrued during the period employees earn these benefits, BUT ONLY ACCRUE if what four criteria are met?
A
A523. 1. OBLIGATION is attributable to services rendered as of the balance sheet date 2. The RIGHTS vest (benefits are no longer contingent on continued employment) or accumulate (carry over to future periods) 3. PAYMENT of the obligation is probable 4. AMOUNT of the obligation is estimable
25
Q524. What does it mean if vacation/holiday rights vest?
A524. Benefits are no longer contingent on continued employment. Employees can leave the firm and be paid the benefits that vested.
26
Q525. What does it mean if vacation/holiday rights accumulate?
A525. Benefits carry over to future periods
27
Q526. What do limits on accumulation of vacation/holiday rights do?
A526. Places a cap on the amount of liability accrued. In other words, you may only be able to accumulate so much.
28
Q527. What wage rates are the accrual of vacation/holiday pay based on?
A527. Based on current wage rates
29
Q528. Is an attempt made to estimate wage increases that might be in effect when vacation or holiday is taken?
A528. No. Accrual is recorded at the current wage rate.
30
Q529. What is the adjusting entry at the end of the period for the accrual of earned and unpaid holiday/vacation pay?
A529. Debit: Salary Expense Credit: Liabilities for Com Ab's
31
Q530. What should be done if there's a pay rate increase?
A530. Only accrue it to Salary Expense if the pay is being paid right then.
32
Q531. Should accumulated sick pay benefits be accrued?
A531. No. But they can be.
33
Q532. What is the rule if unused sick pay benefits are to be paid to employees, for example, if they leave the firm?
A532. Accrual is required.
34
Q533. Deferred or Unearned Revenues are usually related to what type of journal entries?
A533. Adjusting entries
35
Q534. What accounting classification is unearned revenue?
A534. A Liability
36
Q535. What is unearned revenue?
A535. Revenue received but have not earned. i.e. Cash received but product or service not provided.
37
Q536. What is the journal entry for receiving cash in advance of providing the product or service?
A536. Debit: Cash Credit: Unearned Revenue
38
Q537. What is the journal entry for providing the product or service when cash has already been received?
A537. Debit: Unearned Revenue Credit: Revenue
39
Q538. What are sales taxes?
A538. When firms collect sales taxes from their customers and periodically submit them to the government
40
Q539. Between collection and submission of the tax, the firm has a liability to the government. T or F
A539. True
41
Q540. When calculating sales taxes payable, the amount payable may be included in the Total amount collect from the customer. Regarding sales taxes, what is included in the Total amount collected from the customer?
A540. Sales and Sales Taxes
42
Q541. What is the journal entry to record cash sales made to customers, including sales taxes?
A541. Debit: Cash Credit: Sales Credit: Sales Taxes Pay
43
Q542. How would sales taxes payable be calculated from total sales?
A542. Total sales / 1 + Sales Tax%
44
Q543. What is the title for FAS 146?
A543. Accounting for Costs Associated with Exit or Disposal Activities
45
Q544. What does FAS 146, Accounting for Costs Associated with Exit or Disposal Activities, require?
A544. Requires firms to recognize a liability (and expense) for exit or disposal activities at fair value in the period in which the liability is incurred.
46
Q545. What is an exit activity?
A545. Includes a RESTRUCTURING that is planned and controlled by management and materially changes the scope or conduct of the business
47
Q546. What disposal activities does FAS 146, Accounting for Costs Associated with Exit or Disposal Activities not apply to?
A546. An entity acquired in a business combination, and disposal activities not covered by FAS 144 on asset impairment. It also does not apply to costs associated with asset retirement obligations (FAS 143).
48
Q547. Give examples of costs covered by FAS 146, Accounting for Costs Associated with Exit or Disposal Activities.
A547. 1. One-time termination benefits provided to employees terminated under a benefit arrangement that is not part of an ongoing employee benefit agreement. FAS 146 does not alter the accounting for termination benefits under established pension and other employee benefit pronouncements: FAS 87, 88,106, 112. 2. Costs to terminate a contract other than a capital lease 3. Costs to consolidate facilities or relocate employees
49
Q548. Regarding initial recognition and measurement of exit and disposal activities, when is the liability for the cost recognized and at what value?
A548. When the liability is incurred and at fair value
50
Q549. What is fair value?
A549. The amount at which the liability could be settled in a current transaction between willing parties
51
Q550. When should the liability for exit and disposal costs be recognized if fair value cannot be reasonably estimated at the time the liability is incurred?
A550. When the fair value can be reasonably estimated
52
Q551. Regarding initial recognition and measurement of exit and disposal activities, when is a liability incurred?
A551. When the Concepts Statement 6 definition of liability is met: When it is probable that the firm has an obligation to transfer assets or provide services to other entities in the future as a result of past transactions The term probable used in its general meaning
53
Q552. Is creation of an exit or disposal plan sufficient for liability recognition?
A552. No
54
Q553. What is the name of the expense frequently recorded along with the liability to record exit or disposal activities?
A553. Restructuring Expense
55
Q554. When are the costs to terminate a contract recognized?
A554. When the contract is terminated, not when a plan is agreed upon
56
Q555. In regards to exit and disposal activities, the fair value initially recorded for a noncurrent liability is also the PV. T or F
A555. True
57
Q556. In regards to exit and disposal activities, how is the change to the liability balance due to the passage of time recorded?
A556. Is recorded as an increase to the liability and to an expense such as "accretion expense."
58
Q557. In regards to exit and disposal activities, how is the increase to the liability calculated?
A557. It's the product of the credit-adjusted risk-free rate for the firm, and the beginning balance in the liability
59
Q558. What causes an adjustment to the liability balance and the expense recorded initially for exit and disposal activities?
A558. Revisions in the timing or amount of future cash flows used in computing the initial liability
60
Q559. What two factors do liabilities dependent on operating results sometimes need?
A559. Taxes and Bonus
61
Q560. What is a bonus?
A560. An additional amount of compensation in excess of a base salary
62
Q561. Frequently, liabilities related to bonus compensation are dependent on what?
A561. The operating results for the accounting period
63
Q562. Bonuses may be based on what four factors?
A562. Income before or after the bonus Income before or after income taxes
64
Q563. Does entering into a contract (to do something in the future) create a liability for the accounts?
A563. No. The event must meet all three definitions of a liability which includes "being the result of a past transaction or event. A contract to do something in the future is not a past event.
65
Q564. What are the three elements from the conceptual framework that must be met by a liability for it to be included in the accounts?
A564. 1. Probable future sacrifice of economic benefits 2. Obligation to transfer assets or provide services in the future 3. Be the result of a past transaction or event
66
Q565. What affects how a liability is measured?
A565. Its classification into current or noncurrent
67
Q566. Why do many firms have a preference for classifying liabilities as noncurrent rather than current?
A566. To improve their reported liquidity position and reduce the perceived immediate riskiness of the firm.
68
Q567. What SFAS was adopted to curb reporting abuses in the area of classiftying current liabilities as noncurrent?
A567. SFAS #6.
69
Q568. Now there are definite criteria which must be met before a liability due within one year of the balance sheet date can be reclassified as noncurrent. T or F
A568. True
70
Q569. What is the definition of a current liability?
A569. Due in the coming year or the operating cycle of the business, whichever is longer. and An obligation to be met by the transfer of a current asset or the creation of another current liability.
71
Q570. Part of the definition of a current liability involves refinancing a current liability with another current liability. What does this actually mean?
A570. Paying off a currently liability by creating another current liability.
72
Q571. What does refinancing mean?
A571. To get new financing (money) with new terms.
73
Q572. Per SFAS 6, reclassification of a liability to long-term status is possible if what two conditions are met?
A572. 1. Intent 2. Ability
74
Q573. Per SFAS 6, reclassification of a liability to long-term, what is meant by Intent?
A573. The firm must PROVIDE PROOF that it INTENDS to refinance the obligation as of the balance sheet date.
75
Q574. Give examples of proof of intent to refinance a short-term obligation to long-term.
A574. Board of directors' meeting minutes Written correspondence with the financial institution.
76
Q575. Per SFAS 6, reclassification of a liability to long-term, what is meant by Ability?
A575. 1. The firm must also be ABLE to refinance the obligation and demonstrate that ability in one of 3 ways before the issuance of the financial statements. 2. The details of the refinancing arrangement must be disclosed in the footnotes.
77
Q576. If a short-term obligation is paid off in cash before the issuance of the financial statements but after the balance sheet date, how is the it classified in the current year balance sheet?
A576. It remains a current liability because it was extinguished with a current asset.
78
Q577. If a refinancing agreement is cancelable, can the current liability be reclassified to noncurrent liability?
A577. No. Because there's no guarantee that current assets will not be used to pay off the liability.
79
Q578. What is a revolving credit agreement?
A578. When one current liability is continually replaced with another current liability.
80
Q579. Can a revolving credit agreement be reclassified to noncurrent?
A579. No
81
Q580. The amount of short-term debt that can be reclassified as noncurrent is limited to what?
A580. The amount stated in the agreement or the amount put of for collateral by the debtor
82
Q581. What does SFAS 47 discuss?
A581. DISCLOSURE of purchase obligations, redeemable stock, and other long-term obligations.
83
Q582. What four items should be disclosed for a Purchase Obligation?
A582. NFAI 1. The nature and terms of the purchase obligations 2. The fixed and variable components of the purchase obligations 3. Actual purchases of merchandise for each year. 4. If the agreements are noncancelable, the amount as of the balance sheet date and for the next five years must be shown.
84
Q583. What are the two discloses for Redeemable Stock?
A583. FP and FD 1. The fixed or determinable PRICE of the redeemable stock 2. The fixed or determinable DATE for the stock redemptions.
85
Q584. In what two ways can the redeemable stock be disclosed?
A584. Can be disclosed for EACH issuance of redeemable stock or in a COMBINED disclosure for all redeemable stock.
86
Q585. What are the three disclosures for Other Long-term Liabilities?
A585. TSA 1. The TOTAL maturity value of each long-term obligation should be disclosed. 2. The SINKING fund requirements related to each long- term obligation 3. The AGGREGATE amount of the maturities and sinking fund requirements for each of the five years following the balance sheet
87
Q586. What are contingent liabilities?
A586. Liabilities whose existence depends on a future event.
88
Q587. What is the accounting for contingent liabilities dependent on?
A587. (1) The PROBABILITY of the occurrence of a future event and (2) Whether the firm can estimate the amount.
89
Q588. What is a Contingency?
A588. An EXISTING condition (at the balance sheet date) involving UNCERTAINTY as to a possible GAIN or LOSS that will be resolved when a FUTURE event occurs or fails to occur.
90
Q589. What will the resolution of a contingency confirm?
A589. An increase in assets (or reduction in a liability), OR The incurrence of a liability or an asset impairment.
91
Q590. Does a contingency have to be a result of a past transaction or event like other liabilities?
A590. Yes. It's just that a contingent liability also has a future event that plays a role in recognizing the liability.
92
Q591. In assessing the probability of occurrence of a future event of a contingent liability, what must be employed to classify the probability?
A591. Professional Judgment
93
Q592. What are the three categories of classifying the probability of a contingent liability?
A592. Probable Reasonably Possible Remote
94
Q593. Describe the Probable classification for classifying the probability of a contingent liability.
A593. Based on professional, very high or near certainty.
95
Q594. Describe the Reasonably Possible classification for classifying the probability of a contingent liability.
A594. Based on professional judgment, the probability of occurrence is neither very high nor remote. (middle)
96
Q595. Describe the Remote classification for classifying the probability of a contingent liability.
A595. Based on professional judgment, the probability of occurrence is very low or remote.
97
Q596. The accounting for contingencies is also dependent on reasonable estimates. Describe how to achieve a reasonable estimate.
A596. Based on professional judgment and experience, a determination is made about the POSSIBILITY of ESTIMATING the amount of the contingency. Either the amount of resulting gain or loss is reasonably estimable, or it is not
98
Q597. What are the two types of contingencies?
A597. Gain Contingency Loss Contingency
99
Q598. Name the four types of probabilities for loss contingencies?
A598. 1. The loss contingency is probable and can be reasonably estimated at the balance sheet date. 2. The loss contingency is probable and cannot be reasonably estimated. 3. The loss contingency is reasonably possible. 4. The loss contingency is remote.
100
Q599. What does SFAS 5 say about a contingent loss that is both probable and estimable?
A599. An estimated loss and estimated liability will be recognized
101
Q600. What are the guiding theoretical considerations for contingent losses that are both probable and estimable?
A600. Conservatism and Definition of a liability
102
Q601. For contingent liability purposes, what is a loss?
A601. An asset decrease or liability increase
103
Q602. What is meant by a loss contingency that is probable and cannot be reasonably estimated?
A602. SHOULD be disclosed in the footnotes
104
Q603. What is meant by a loss contingency that is reasonably possible?
A603. Whether the loss can be reasonably estimated or not, the loss contingency IS disclosed in the footnotes
105
Q604. What is meant by a loss contingency that is remote?
A604. Whether the loss can be reasonably estimated or not, the loss contingency CAN be disclosed in the footnotes. Footnote disclosure is permitted but not required.
106
Q605. What are the three types of Gain contingencies?
A605. 1. Probable 2. Reasonably Possible 3. Remote
107
Q606. What should be done if a gain contingency is probable?
A606. In this situation, whether the gain can be reasonably estimated or not, the gain contingency IS disclosed in the footnotes
108
Q607. What should be done if a gain contingency is reasonably possible?
A607. In this situation, whether the gain can be reasonably estimated or not, the gain contingency IS disclosed in the footnotes
109
Q608. What should be done if a gain contingency is remote?
A608. In this situation, whether the gain can be reasonably estimated or not, footnote disclosure of the gain contingency is not recommended.
110
Q609. Firms may be able to estimate a possible range of amounts for the gain or loss, but be unable to assign any amount in the range a higher probability of occurring than any other amount. T or F
A609. True
111
Q610. What is a loss in relation to contingent liabilities?
A610. An asset decrease or liability increase
112
Q611. What is a gain in relation to contingent liabilities?
A611. An asset increase or liability decrease
113
Q612. Conservatism plays an important role in recognizing contingent liabilities, but when only a range of possible values is known for a probable loss contingency, what is the exception made in recognizing in the accounts?
A612. When there's a range of values and no probability is given to one value over the other, the LOWEST rather than the highest amount is used for reporting purposes. -- However, the footnotes should disclose the entire range. If a range of values were given but one value in the range has a higher probability assigned to it than any other, the value with the higher probability is used for reporting.
114
Q613. What type of loss contingency is a warranty liability?
A613. Probable and Estimable
115
Q614. For warranty liabilities, the firm usually estimates the number of claims to be submitted by customers. What is the journal entry to record the estimate?
A614. Debit: Warranty Expenses Credit: Warranty Liabilities
116
Q615. For warranty liabilities, when should an estimate of claims be recorded in the accounts?
A615. In the year of sales
117
Q616. If a firm significantly overstates the actual claims cost from the previous year, what should be done in the current year?
A616. In an adjusting entry, a smaller percent of sales is used to estimate the current year's sales. The opposite is true as well.
118
Q617. Is there a retroactive adjustment for estimating warranty claims?
A617. No. The estimate is changed for the current and future periods to reflect the actual level of claims.
119
Q618. Regarding a range of estimable loss contingencies with no value having a higher probability over the other, the lowest value should be used. Is this the least or most conservative option?
A618. Least
120
Q619. What is the journal entry for a Contingent Litigation?
A619. Debit: Estimated Loss from Pending Lawsuit Credit: Estimated Loss from Pending Lawsuit
121
Q620. For contingent premium liabilities, how is the estimate for premium calculated?
A620. Sales/Contingency Factor x Probability % x Cost i.e Contingency Factor would be: Must return 20 coupons to receive a free cup
122
Q621. What two journal entries must be done in Year 1 of a premium offer?
A621. Record the Purchase of the premium item to be offered Record the Estimate of the Premium to be redeemed
123
Q622. What is the journal entry to record a purchase of an item for premiums to be offered?
A622. Debit: Premium Inv Credit: Cash
124
Q623. What is the journal entry to record the estimation of premiums to be redeemed?
A623. Debit: Estimated Premium Expenses Credit: Estimated Premium Liabilities
125
Q624. What is the journal entry to record the actual redemption of a premium ( i.e. premium coupons)?
A624. Debit: Estimated Premium Liabilities Credit: Premium Inv
126
Q625. Which entities determined GAAP? Since 1934 1939 until 1959 1959 until 1973 1973 until 2009
A625. 1934 -SEC (Securities and Exchange Commission) legal authority to establish US GAAP. 1959 until 1973 - APB (Accounting Principles Board) 1973 until 2009 - (FASB) Financial Accounting Standards Board 1939 until 1959 - CAP (Committee on Accounting Procedures of AICPA)
127
Q626. Effective July 1, 2009
A626. FASB Accounting Standards Codification became the single source of authoritative nongovernment US GAAP....Accounting and financial reporting practices not included in the Codification are not GAAP.
128
Q627. Authoritative Literature Included in the Codification (7) various standard setters
A627. FEDPRIA.. F- FASB (Financial Accounting Standards Board) E - EITF (Emerging Issues Task Force) D - Derivative Implementation Group Issues P - Accounting Principles Board Opinion R - Accounting Research Bulletins I - Accounting Interpretations A - AICPA (American Institute of Certified Public Accountants
129
Q628. FASB (6) codification literature
A628. FASB (6) codification literature 1. Statement of Financial Accounting Standards 2. Interpretations 3. Technical Bulletins 4. Staff Positions 5. Staff Implementation Guides 6. Statement No. 138 Examples
130
Q629. AICPA (4) codification literature
A629. AICPA (4) codification literature 1. Statements of Position 2. Auditing and Accounting Guides (Incremental Accounting guidance only) 3. Practice Bulletins 4. Technical Inquiry Service (for software revenue recognition)
131
Q630. SEC Standards included in the codification (6)
A630. SEC Standards included in the codification (6) 1. Regulation S-X 2. (FRR) - Financial Reporting Releases 3. (ASR) Accounting Series Releases 4. (IR) Interpretative Releases 5. (SAB) Staff Accounting Bulletin 6, EITF Topic D and SEC Staff Observer comments
132
Q631. FASB updates the Accounting Standards Codification for new US GAAP issued and for amendments to the SEC content
A631. FASB amendments are issued for public comment in the form of Exposure Drafts.
133
Q632. A majority vote of 3 board members is required to approve an Exposure Draft for issuance.
A632. All new GAAP and SEC amendments are fully integrated into the existing structure of the Codification.
134
Q633. International Accounting Standards Committee (IASC) - 1973 until 2001 International Accounting Standards Board (IASB) - 2001 Intl Financial Reporting Interpretations Committee(IFRIC)
A633. The purpose of the IASB is to develop a single set of high quality global accounting standards. The IFRIC is appointed by the trustees of IASC foundation to assist the IASB in establishing and improving standards of financial accounting and reporting. The IASB issues Intl Financial Reporting Standards (IFRS) and related documents.
135
Q634. SFAC No. 1 - Objectives of Financial Reporting
A634. Focus on information needs of external users. Purpose of Financial reporting are for external users to disclose entity's performance.
136
Q635. SFAC No. 2 - Qualitative Characteristics of Accounting information. Hierarchy of Qualitative:
A635. BUDS B- Benefits greater than cost to obtain and present the information U - Understandability -reasonable amount of knowledge and amount of effort to study the information presented. D - Decision Usefulness - Primary Relevance and Reliability (R&R) S - Secondary Characteristics - Comparability and Consistency (C&C)
137
Q636. Primary R&R - Relevance (3)
A636. Relevance (Passing Feels Terrific) - (PFT) 1. Predictive Value - evaluate events 2. Feedback Value - confirm prior 3. Timeliness - availability
138
Q637. Primary R&R - Reliability (3)
A637. Reliability -Nobody Relies on Financials unless Verified. (NRFV) 1. Neutrality - free from bias 2 Representational Faithfulness - Not misleading 3. Verifiability - can be verified
139
Q638. Secondary Characteristics (C&C)
A638. Secondary Characteristics (C&C) 1. Comparability - identify similarities/ differences in two sets of information (Ex. Apple vs. Microsoft) 2. Consistency - Ability to Compare one period to another. (Ex. Prior year vs Current year)
140
Q639. SFAC No. 7 Using Cash Flow Information and Present Value in Accounting Measurements. 5 elements of PV
A639. 5 elements of PV 1. Estimate of future cash flow 2. Expectations about timng variations of future cash flows 3. Time Value of money 4. The price for bearing uncertainty. 5. Other factors (liquidity issues/credit risk and market imperfections)
141
Q640. Present Value Computations (2)
A640. Present Value Computations (2) 1. Traditional Approach - PV bonds, scheduled known payments 2. Expected Cash Flow Approach ( PV warranties, uncertain future payments
142
Q641. Income statement
A641. Performance for a period of time; useful in determining profitability, value of investment purposes and credit worthiness.
143
Q642. Presentation order of major components of the income and retained earnings statement (IDEA)
A642. IDEA I - Income (or Loss) from Continuing Operations - before tax (include operating. non operating activities and income taxes) D - Discontinued Operations - net of tax E - Extraordinary Items - unusual in nature and infrequent in occurrence. A - Accounting Principle-Cumulative effect of change..reported net of tax on Retained Earnings
144
Q643. I- Income from continuing operations - multiple step income statement
A643. I - Income from continuing operations (gross & net of tax) the multiple step income statement reports operating (core business) revenues and expenses separately from non operating (not core) revenues and expenses and other gains and losses. Ex. Net sales>cost of goods sold>gross margin>selling expenses>general & admin expenses>depreciation expense>income (loss) from operations then... Other revenues and gains> interest income>gain on sale of fixed asset>other income>Other expenses & losses>interest expense>loss on sale of fixed asset>income before unusual items and income tax>unusual or infrequent items>loss on sale of available for sale securities>Income before income tax>provision for income taxes>current tax>deferred> Net Income (after tax)
145
Q644. D - Discontinued Operations - exit of disposal activities (net of tax) assets are no longer depreciated or amortized
A644. D - Discontinued Operations -normal (loss) loss from discontinued operations can consist of an impairment loss, a gain/loss from actual operations, and gain/loss on disposal included in the period in which they occurred. displayed in the income statement after income from Continuing operation.
146
Q645. Held for sale (4 criteria)
A645. A component of a business or disposal group is classified as Held for Sale in the period in which the 4 the criteria: 1. Plan 2. Available 3. Advertised 4. Unlike to Review
147
Q646. Discontinued Operation calculation Facts: Losing $200k per month 4/30 Yr1 decision to dispose 4/30 Yr1 carrying value $4 mil 4/30 Yr1 fair value $2.2 mil 6/30 Yr2 sold for 2 mil Yr2 continued losing $200k per month Tax rate 40% What year would held for sale and impairment loss be recognized? What is the impairment loss? Loss from continuing operations Yr1 and Yr2? Total loss from discontinued operations (after tax) for Yr 1 and Yr 2?
A646. Held for Sale Yr1 and Impairment Yr1. Impairment loss: $1,800,000 Loss from continuing operation: Yr1 $2,400,000 = 200,000 x 12 and Yr2 $1,200,000 = $200,000 x 6 Loss from discontinued operations : Yr 1 $2,520,000 = (1,800,000 +2,400,000) x (1-40%) and Yr 2 $840,000 = (1,200,000 + $200,000) x (1-40%)
148
Q647. Extraordinary Items - net of tax (IFRS - prohibits)
A647. Extraordinary items are transactions that are material in nature, significantly different from the typical business activities, not expected to recur in the foreseeable future. (usual and infrequent) disclosed in the income statement after discontinued operations.
149
Q648. Nonextraordinary items - gross, before tax
A648. Separate component of continuing operations (5) 1. gain/loss from sale or abandonment of property used in the business 2. Large writedowns or writeoffs 3. Gain/Loss from foreign currency transaction or translation 4. Losses from major strike by employees 5. Long term debt extinguishments (mgmt strategy)
150
Q649. Accounting Changes and Error Corrections (3) - Retained Earnings Statement (cumulative effect of change in accounting)
A649. Accounting changes and error corrections. Changes in accounting: 1. Estimate - (prospective) effects current and future, not acct principle such as LIFO to FIFO depreciation. 2. Principle - (retro) - must be a justified change from one accounting principle to another acceptable principles. such as completed contract method vs. percentage of completion 3. Change in Accounting Entity - restate - when entity being reported on has changed composition. such as consolidated statement to single statement. 4. Error Corrections - restate - prior period adjustment. adjust beginning retained
151
Q650. Statement of Retained Earnings -
A650. Beginning balance>Prior period adjustment> Add: income tax benefit> cumulative effect of accounting change> Less: income tax effect>Beginning balance> Add net income> Less Dividends>Cash dividend declared on common stock> Ending Balance.
152
Q651. Comprehensive Income - non owner transactions
A651. Comprehensive Income is the change in equity (net assets) of a business enterprise during a period from nonowner transactions. Net Income: Per Income Statement (IDE) + Other comprehensive income (PUFER)
153
Q652. PUFER- direct to equity
A652. PUFER P- Pension Adjustments U- Unrealized Gains/Losses F- Foreign Currency Items E- Effective Portion of Cash Flow Hedges (IFRS only) R- Revaluation Surplus
154
Q653. Reclassification Adjustments -Avoids double counting
A653. Move other comprehensive income items from accumulated other comprehensive income to the income statement. They may be displayed on the face of the financials or the notes.
155
Q654. Financial Statement Reporting my be presented in 3 approachs
A654. 1. Single Statement Approach - start with revenue>expenses>income before income taxes>income tax (%)> net income>Other comprehensive income, net of income tax>Pension net loss>Unrealized holding gains> foreign currency items>Comprehensive income. 2. Two statement approach- start with Net Income + PUF 3. Component within statement of Owner's Equity- starts with beginning and ending balances. it also includes retained earnings information.
156
Q655. Notes to Financial Stmt
A655. Both IFRS and GAAP require a description of all significant policies be included as an integral part of the financial statements.
157
Q656. Summary of Significant Accounting Policies Identify and describe: measurement bases used in principles/ methods, criteria, policies, pricing.
A656. Remaining notes to the Financial Statements Information relevant to decision makers. Such as pension plan description and Contractual obligations.
158
Q657. Interim Financial reporting - Quarterly Financials - Not required under US GAAP or IFRS. - Matching of revenue and expenses by quarter and not by year. -timeliness over reliability
A657. Segment Reporting - provide information on the business activities and the economic environment of a country. Publically traded - big conglomerate with lots of products sold in differ geo areas. "better understand the whole in parts.
159
Q658. Disclosures of all Public Enterprises (Publically Traded) Segmented by Operating segments, Products and Service, Geographic areas, Major customers
A658. Intercompany Transactions not eliminated for reporting. transactions between the segments such as consolidations between parent companies and subsidiary
160
Q659. Qualitative Threshold for Reportable Segments. 10% test for revenue, profit & loss and assets. 75% reporting sufficiency test for consolidated revenue.
A659. Development Stage enterprises (GAAP) - an operation has not yet commenced or principal operation have generated an insignificant amount of revenue (or loss)
161
Q660. Fair Value measurement and disclosures
A660. Fair value is the price to sell an asset of transfer a liability in a orderly transaction between market participants at the measurement date.
162
Q661. Most areas require fair value disclosures, separate rules apply to..
A661. Inventory pricing which is lower cost of market, Present value lease classification and measurement.
163
Q662. Orderly fair value transactions can not be a forced transaction such as a liquidation. -Fair value Market participants are independent buyers and sellers - and not related parties. Use Most Advantageous Market if no principle market. Highest and Best Use - Use or Exchange
A662. Fair Value Valuation Techniques (3) 1. Market Approach - identical and comparable 2. Income Approach - cash flows or earnings 3. Cost Approach - replacement cost
164
Q663. Fair Value Hierarchy of Inputs (3) Level 1 Most Reliable; Identical and Active Markets Level 2 Similar/Active > Identical/ Not Active Market Level 3 Not quite as reliable
A663. Exceptions to Fair Value measurement (3) 1. It is not practical to measure 2. Can not be reasonably determined 3. Can not be measured with sufficient reliability.
165
Q664. Revenue should be recognized when...
A664. Revenue should be recognized when it is realized and when it is earned
166
Q665. 4 criteria should be met for each element of the contract...
A665. 1. Evidence of arrangement exists (signed contract) 2. Services have been rendered (risk & reward transfer) 3. Price is fixed and determinable (no price contingencies) 4. Collection is reasonably assured (standard collection terms)
167
Q666. Revenue from the sales of products or the disposals of assets is recognized on the date of sale (delivery date) 4 criteria apply for a sale to take place
A666. 1. delivery of goods or setting aside goods ordered 2. transfer of legal title 3. Asset use 4. services rendered
168
Q667. IFRS revenue recognition (4 types of revenue)
A667. 1. Sale of Goods 2. Rendering of Services 3. Interest, Royalties & Dividends 4. Construction contracts Revenue recognized when cost is measured reliably and probable that economic benefit will flow to the entity. others include risk & reward, not retain managerial involvement, and stage of completion.
169
Q668. Multiple Element Arrangement (US GAAP)
A668. Sale contract includes multiple products or services. the Fair Value of the contract must be allocated to separate contract elements.
170
Q669. Exceptions and Other Special Accounting Treatments (7)
A669. 1. Deferred Credits 2. Installment Sales 3. Cost Recovery Method 4. Nonmonetary Exchanges 5. Involuntary Conversions 6. Net Method for Accounting for Trade (Sales) Discounts 7. Percentage of Completion Contract Accounting
171
Q670. Deferred Credits
A670. Liability = Earn it or Return it Cash is received before it is earned Examples...prepaid interest income, prepaid rental income, prepaid royalty income
172
Q671. Installment Sales
A671. (not GAAP) Revenue is recognized as collections are made.
173
Q672. Cost Recovery Method
A672. (not GAAP) No profit is recognized on a sale until all costs have been recovered.
174
Q673. Nonmonetary Exchanges
A673. Recognition of revenue depends upon the type of exchange.
175
Q674. percentage of completion contract accounting
A674. revenue is recognized as production takes place for long term constructions contracts having cost that can be reasonable estimated. If cost cannot be reasonably estimated the completed contract method must be used.
176
Q675. Expenses are...
A675. Expenses are reductions of assets and/or increases of liabilities during a period of time. Recognized according to the matching principal
177
Q676. Realization occurs...
A676. Realization occurs when the entity obtains cash or the right to receive cash or has converted a noncash resource into cash. (really happens in the real world)
178
Q677. Matching Principle
A677. Matching of revenues and costs is the simultaneous or combined recognition of revenues ad expenses that results directly and jointly from the same transactions or events.
179
Q678. Accrual Accounting
A678. Accrual Accounting is required by GAAP and is the process of employing the revenue recognition rule and matching principle to the recognition of revenues and expenses.
180
Q679. percentage of completion contract accounting
A679. revenue is recognized as production takes place for long term constructions contracts having cost that can be reasonable estimated. If cost can not be reasonably estimated the completed contract method must be used.
181
Q680. Accrued Assets (or accrued revenues) represents
A680. The recognition of an Accrued Assets (or accrued revenues) (i.e. interest receivable ) represents revenue recognized or earned through the passage of time (or other criteria) not yet paid to the entity. Earned not paid by client
182
Q681. Accrued Liabilities (or accrued expenses) represents
A681. Accrued Liabilities (or accrued expenses) represents expenses recognized or incurred through the passage of time (or other criteria) but not yet paid by the entity. Example: Accrued interest payable, accrued wages...
183
Q682. Estimated Liabilities represent
A682. Estimated Liabilities represent the recognition of probable future changes that result from prior act. Example: the estimated liability of warranties, trading stamps or coupons.
184
Q683. Expired Cost are..
A683. Expired cost are costs that expire during the period and have no future benefit Example: insurance expense, cost of goods sold, period costs such as selling, general and administrative expenses.
185
Q684. Unexpired costs should...
A684. Unexpired costs should be capitalized and matched against future revenues. Deferred charges Example: fixed asset and inventory stay on the balance sheet (for now)
186
Q685. CAP - Committee on Accounting Procedure
A685. part-time committee, accounting research bulletins 39-59
187
Q686. Accounting Prin Board APB,
A686. another part time - determined GAAP 59-73
188
Q687. FASB
A687. 1973 On
189
Q688. Statements of Financial Standards (SFAS)
A688. 1 - These statements establish GAAP, issued after research, discussion and public comments
190
Q689. FASB Interpretations
A689. 2 - Clarify GAAP. addressing issues that may be conflicting or ambiguous
191
Q690. Technical Bulletins
A690. 3 expand upon or further clarify GAAP because of problems that may exist in accounting or reporting under the standard or interpretation
192
Q691. Statements of Accounting Concepts SFAC
A691. 4 establish the objectives and concepts for use by the FASB in developing accounting and reporting standards. Do not establish GAAP
193
Q692. Emerging issues Task Force Statements
A692. 5 - address emergent issues and may show how to account for specific or unusual applications of GAAP
194
Q693. FASB Implementation Guides
A693. 6 questions and answers - nearly no authority
195
Q694. Hierarchy of sources of GAAP
A694. 1. SFAS 2. FASB Interpretations 3. Technical Bulletins 4. SFAC 5. EITF 6. FASB Implementation Guides
196
Q695. Hierarchy of Sources of GAAP 2
A695. 1. Accounting Research Bulletins (ABR) 2. Accounting Principles Board Opinions (APBO) 3. FASB Statement of Financial Accounting Standards 4. FASB Staff Positions 5. FASB Interpretations 6. FASB Statement Implementation Issues BOSSII
197
Q696. SFAC No. 2 Hierarchy
A696. 1. Understandable 2. Relevant 3. Reliable 4. Comparable 5. Consistent 6. Material 7. Less costly than benefit provided
198
Q697. SFAC No. Constraints
A697. 1. Costs and Benefits - benefits of accounting information must be greater than cost. 2. Materiality - the information must be material - this information important to make decisions
199
Q698. Understandability
A698. understandable to those with reasonable info, effort
200
Q699. Usefulness (Primary quality of decision usefulness)-
A699. primary quality of accounting information can be broken down by Relevance and Reliability
201
Q700. Relevance (3)
A700. 1. Predictive Value - assist users in past/pre/future 2. Feedback Value - confirm or readjust 3. Timeliness
202
Q701. Reliability (3)
A701. 1. Neutrality 2. Representational Faithfulness - information is valid 3. Verifiability - objective
203
Q702. Secondary Information Characteristics (2)
A702. 1. Comparability - compare instances 2. Consistency -from period to period.
204
Q703. SFAC No. 3
A703. Elements of Financial Statements of a Business Replaced by 6
205
Q704. SFAC No. 5
A704. Recognition and Measurement in the Financial Statements - what and when information in Financial Statements
206
Q705. SFAC No. 5 - Full set of Financial Statements
A705. 1. Statement of Financial Positon - BS 2. Statement of Earnings - IS 3. Statement of Comprehensive Income 4. Statement of CF's 5. Statement of Changes in OE
207
Q706. SFAC No. 5 - Fundamental Recognition Criteria
A706. formally recording an item in FS 1. Definitions - Does it meet the def. of an element from SFA No. 6 2. Measurability 3. Relevance 4. Reliability
208
Q707. SFAS No. 5 - Measurement Attributes for Ass and Liab (5)
A707. 1. Historical Cost 2. Current Cost 3. Net Realizable Value 4. Current Market Value 5. Present Value of Future Cash Flows
209
Q708. SFAS No. 5 - Fundamental Assumptions(10)
A708. 1. Entry Assumption - Separate group of trans 9(corp etc.) 2. Going concern 3 - Monetary Unit - money appropriate 4. Periodically Assumption 5. Historical Cost Assumption - cost, not market value 6. Revenue Recognition Principal 7. Matching Principle 8. Accrual Accounting - not cash 9. - Full Disclosure Prin. - user gets info 10. Conservatism Principal
210
Q709. Revenue Recognition Principal (2 to be recognition)
A709. 1. Earned 2. Realized or Realizable
211
Q710. SFAS No. 6
A710. Is Elements of Financial Statements - the elements information for No. 1
212
Q711. SFAS No. 6 - Elements of Financial Statements (10)
A711. 1. Comp Income - diff in equity- owner changes 2 - Rev 3 - Exp 4. Gains 5. Losses 6. Assets 7. Liabilities 8 Equity (of Net Assets) 9. Investments by owners 10. Distributions to Owners
213
Q712. SFAC No. 7 -
A712. Using Cf information and PV in accounting measurements - PV of uncertainties and A and L
214
Q713. SFAC No. 7 (6) -
A713. 1. Measurements Based on FCF Only - only talks about what can be det. using future CF's 2. Five Elements of Present Value Measurement 3 Fair Value Objective - estimate fair value if can't find in market. 4. Present Value Computations 5. Liability Measurement considers Additional Factors 6. Changes in Estimated CF Using the Catch-up Approach
215
Q714. SFAC No. 7 - five Elements of PV Measurement (5) -
A714. five elements of PV measurement that are bases of 7 1. estimate of FCF's 2. Expectations about timing variations 3 - Time Value of Money (RFR of int.) 4. The Price for Bearing Uncertainty 5. Other - liq, market imperfections.
216
Q715. SFAC No. 7 Present Value Computations (2)
A715. 1. Traditional Approach - one discount rate) - Cf s don't vary 2. Expected CF Approach - uses RFR and focuses on future CF's
217
Q716. SFAC No. 7 - Expected CF Approach (2)
A716. 1. Expected CF - CF and prob. 2. Risk and Uncertainty Adjustments to CF's - adjustments for uncertainty
218
Q717. SFAS No. 7 - Liability Measurement Considers Additional Factors
A717. 1. Costs to Settle 2. Credit Standing of company
219
Q718. SFAS No. 7 - Catch-up Approach
A718. Catch-up Approach - adjust carrying amount of A or L to the PV determined with revised est. and discount using original effective rate.
220
Q719. Net Income - 1. Uses and Terminology
A719. Uses - Profitability, Value, Credit Worthiness Terminology
221
Q720. Net Income - 1. Terminology (3)
A720. 1. Cost and Unexpired Costs 2. Gross Concept (Revenue and Exp) 3. Net Concept
222
Q721. Net Income - 1. Terminology – Cost and Unexpired Costs (3)
A721. 1. Cost - amount paid 2. Unexpired Costs - will be charged, allocated in future 3. Examples
223
Q722. Net Income - 1. Terminology - Unexpired Cost Examples
A722. 1. Inventory ====> COGS 2. Prepaid ====> Ins 3. bk value of Assets ====> Depreciation Expense Cost of Patents
224
Q723. Gross Concept (Revenue and Expense)
A723. 1. Revenue - are reported at their gross amts (less returns and disc) 2. Exp - gross amts.
225
Q724. Net Concept
A724. Gains - net - proceeds less book value - no in ord business Loss - net - Not in ordinary course of bus.
226
Q725. Reported in IS (3)
A725. Income(loss) - from continuing operations - Ops, Non-ops and tax - Report Gross 2. Inc/Loss from Discontinued Ops - Net of Tax 3. Extraordinary Items (net of tax)
227
Q726. Reported on RE
A726. Cum effect of change in accounting prin. - net of tax
228
Q727. IDEA
A727. I - Income from Continuing Ops - gross D - Discontinued Ops - Net E - Extraordinary items -net A - Acct Prin Change - net ( in RE Statement, not IS)
229
Q728. Single Step Income Statement
A728. All expense out of Revenue - simple - no classification
230
Q729. Multi Step Inc. Statement
A729. Operating revenue and expense separately from non- operating revenue and expense - and other gains and losses enhanced info
231
Q730. Inventory Cost consists of
A730. Purchase price, freight in
232
Q731. Selling Expense consists of
A731. Freight out, salaries and commissions, advertising
233
Q732. General & Administrative consists of
A732. Officers' salaries, accounting and legal, insurance
234
Q733. Non-operating consists of
A733. Auxiliary activities, interest expense
235
Q734. SFAS No. 144
A734. Discontinued operations are still reported separately from continuing operations in the income statement according to the IDEA mnemonic, net of tax.
236
Q735. Discontinued operations
A735. The (normally) loss from discontinued operations can consist of an impairment loss, a gain/loss from actual operations, and a gain/loss on disposal.
237
Q736. Discontinued operations allocation
A736. In time period incurred (no anticipated)
238
Q737. COMPONENT OF AN ENTITY
A737. A component of an entity is a part of an entity (the lowest level) for which operations and cash flows can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the entity.
239
Q738. COMPONENT OF AN ENTITY (5)
A738. 1. An operating segment, 2. A reportable segment (as those terms are defined in segment reporting), 3. A reporting unit (as that term is defined in goodwill impairment testing), 4. A subsidiary, or 5. An asset group.
240
Q739. ASSET GROUP
A739. An asset group is a collection of assets to be disposed of together as a group in a single (disposal) transaction and the liabilities directly associated with those assets that will be transferred in that same transaction.
241
Q740. A component of a business is classified as "held for sale" in the period in which ALL of the following criteria are met: (6)
A740. 1. Management commits to a plan to sell the component. 2. The component is available for immediate sale in its present condition. 3. An active program to locate a buyer has been initiated. 4. The sale of the component is probable and the sale is expected to be complete within one year. 5. The sale of the component is being actively marketed. 6. Actions required to complete the sale make it unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
242
Q741. The results of operations of a component of an entity will be reported in discontinued operations if either the component: (2)
A741. 1. Has been disposed of, or 2. Is classified as held for sale.
243
Q742. DO Conditions that must be present
A742. All related costs shall be recognized when the obligations to others exist, not necessarily in the period of commitment to a plan.
244
Q743. DO Both of the following conditions must be met in order to report in discontinued operations the results of operations of a component that has been disposed of or is held for sale:
A743. 1. Eliminated from Ongoing Operations 2. No Significant Continuing Involvement
245
Q744. Types of Items Included in Results of Discontinued Operations (3)
A744. a. Results of Operations of the Component b. Gain or Loss on Disposal of the Component c. Impairment Loss (and Subsequent Increases in Fair Value) of the Component
246
Q745. IDO mpairment Loss (and Subsequent Increases in Fair Value) of the Component
A745. (1) Initial and Subsequent Impairment Losses (2) Subsequent Increases in Fair Value
247
Q746. DO Initial and Subsequent Impairment Losses
A746. A loss is recognized for recording the impairment of the component (i.e., any initial or subsequent write-down to fair value less costs to sell).
248
Q747. DO Subsequent Increases in Fair Value
A747. A gain is recognized for any subsequent increase in fair value minus the costs to sell (but not in excess of the previously recognized cumulative loss).
249
Q748. DO Report in the Period Disposed of or Held for Sale
A748. The results of discontinued operations of a component are reported in discontinued operations (for the current period and for all prior periods presented) in the period the component is either disposed of or is held for sale. The results of subsequent operations of a component classified as held for sale are reported in discontinued operations in the period in which they occur.
250
Q749. DO Depreciation and Amortization
A749. Assets within the component are no longer depreciated or amortized.
251
Q750. DO - ANTICIPATED FUTURE GAINS OR LOSSES
A750. A gain or loss not previously recognized that results from the sale of the component is recognized at the date of sale and not before (i.e., gains or losses anticipated to occur in future periods are not recognized until they occur).
252
Q751. DO - SUBSEQUENT ADJUSTMENTS TO AMOUNTS PREVIOUSLY REPORTED
A751. Adjustments to amounts previously reported in discontinued operations that are directly related (see definition in item E.2, below) to the disposal of a component of an entity in a prior period are classified in the current period in discontinued operations. 1. Examples a. Resolution of contingencies related to terms of the disposal transaction (e.g., purchase price adjustments and indemnification issues) b. Resolution of contingencies directly related to the operations the component before it was disposed of (e.g., warranty obligations and environmental responsibilities)
253
Q752. DO - Definition of "Directly Related"
A752. In order for a settlement to be considered directly related to a component of an entity, it must: a. Have a demonstrated cause-and-effect relationship and b. Occur no later than one year after the date of the disposal transaction (unless circumstances beyond the control of the entity exist).
254
Q753. DO - MEASUREMENT AND VALUATION
A753. A component classified as held for sale is measured at the lower of its carrying amount or fair value less costs to sell. Costs to sell are the incremental direct costs to transact the sale.
255
Q754. DO - PRESENTATION AND DISCLOSURE
A754. 1. Present as a Separate Component of Income The results of discontinued operations, net of tax, are reported as a separate component of income before extraordinary items. 2. Disclose in Face or in Notes A gain or loss recognized on the disposal shall be disclosed either on the face of the income statement or in the notes to the financial statements.
256
Q755. IDEA E (Extraordinary Items) Defined (4)
A755. According to APB Opinion No. 30, extraordinary items are transactions and other events that are: 1. Material in nature, 2. Of a character significantly different from the typical or customary business activities, 3. Not expected to recur in the foreseeable future, and 4. Not normally considered in evaluating the ordinary operating results of an enterprise.
257
Q756. EI - HOW TO CLASSIFY
A756. Extraordinary items are usually determined by informed professional judgment, taking into consideration all the facts involved in a particular situation. Since the issuance of SFAS No. 145, the provisions of APB Opinion No. 30 dictate the classification of all extraordinary items.
258
Q757. EI - SEPARATE DISCLOSURE
A757. Extraordinary items must be separately disclosed in the income statement, net of any related tax effects, after discontinued operations.
259
Q758. EI - EXAMPLES OF EXTRAORDINARY ITEMS (4)
A758. 1. The abandonment of, or damage to, a plant due to an infrequent earthquake or an infrequent flood 2. An expropriation of a plant by the government 3. A prohibition of a product line by a newly enacted law or regulation 4. Certain gains or losses from extinguishment of long- term debt, provided they are not part of the entity's recurring operations and, thus, meet the criteria of APB Opinion No. 30 (per SFAS No. 145).
260
Q759. EI - EXAMPLES OF NONEXTRAORDINARY ITEMS
A759. The following gains or losses are NOT extraordinary (they are presented as a separate component of "continuing operations"): 1. Gain or loss from sale or abandonment of property, plant, or equipment used in the business 2. Large writedowns or writeoffs of: a. Receivables b. Inventories c. Intangibles (including goodwill) d. Long-term securities (permanent decline) 3. Gain or loss from foreign currency transactions or translation, whether from major devaluations or otherwise (provided these occur on a regular basis as part of normal business operations) 4. Losses from major strike by employees 5. Long-term debt extinguishments that are part of a common management
261
Q760. MATERIAL UNUSUAL OR INFREQUENT ITEMS
A760. Items of income or loss that are either unusual or infrequent are not extraordinary (e.g., gain on the sale of a factory building). If material, these items should be reported as a separate line item as part of income from continuing operations (and not net of tax). The nature of the item and the financial effects should be disclosed on the face of the income statement or in the footnotes.
262
Q761. IDEA - Accounting Principle Change (3)
A761. GENERAL Accounting changes are broadly classified as: (i) Changes in accounting estimate, (ii) Changes in accounting principle, and (iii) Changes in accounting entity. Note that prior period adjustments are not considered accounting changes. II. CHANGES
263
Q762. APC - CHANGES IN ACCOUNTING ESTIMATE (PROSPECTIVELY)
A762. A change in accounting estimate occurs when it is determined that the estimate previously used by the company is incorrect.
264
Q763. APC - EVENTS RESULTING IN ESTIMATE CHANGES (6)
A763. 1. Changes in the lives of fixed assets 2. Adjustments of year-end accrual of officers' salaries and/or bonuses 3. Write-downs of obsolete inventory 4. Material non-recurring IRS adjustments 5. Settlement of litigation 6. Changes in accounting principle that are inseparable from a change in estimate (e.g., a change from the installment method to immediate recognition method because uncollectible accounts can now be estimated)
265
Q764. APC - REPORTING A CHANGE IN ESTIMATE (2)
A764. 1. Prospectively 2. Change in Estimate Affecting Future Periods
266
Q765. Prospectively
A765. Changes in accounting estimate are accounted for prospectively (i.e., implement in the current period and continue in future periods). They do not affect previous periods (i.e., no effect on previously reported retained earnings).
267
Q766. Change in Estimate Affecting Future Periods
A766. If a change in accounting estimate affects several future periods (e.g., a revision of service lives of depreciable assets), the effect on income before extraordinary items, net income, and the related per share information for the current year should be disclosed in the notes to the financial statements. Note: Changes in ordinary accounting estimates (e.g., uncollectible accounts and inventory adjustments) usually made each period do not have to be disclosed unless they are material.
268
Q767. CHANGES IN ACCOUNTING PRINCIPLE (RETROSPECTIVE APPLICATION)
A767. A change in accounting principle is a change in accounting from one acceptable method of GAAP to another acceptable method of GAAP (i.e., GAAP to GAAP).
269
Q768. CHANGES IN ACCOUNTING PRINCIPLE (RETROSPECTIVE APPLICATION) - RULE OF PREFERABILITY
A768. An accounting principle may be changed only if the alternative principle is preferable and more fairly presents the information. Justification for the change may stem from certain current and future AICPA Statements of Position and AICPA Industry and Audit and Accounting Guides.
270
Q769. CHANGES IN ACCOUNTING PRINCIPLE (RETROSPECTIVE APPLICATION) - NONRECURRING CHANGES
A769. An accounting change should not be made for a transaction or event in the past that has been terminated or is nonrecurring.
271
Q770. CHANGES IN ACCOUNTING PRINCIPLE (RETROSPECTIVE APPLICATION) -EFFECTS OF A CHANGE - Direct Effects
A770. The direct effects of a change in accounting principle are adjustments that would be necessary to restate the financial statements of prior periods.
272
Q771. CHANGES IN ACCOUNTING PRINCIPLE (RETROSPECTIVE APPLICATION) -EFFECTS OF A CHANGE - Indirect Effects
A771. The indirect effects of a change in accounting principle are differences in nondiscretionary items based on earnings (e.g., bonuses) that would have occurred if the new principle had been used in prior periods.
273
Q772. CHANGES IN ACCOUNTING PRINCIPLE (RETROSPECTIVE APPLICATION) -EFFECTS OF A CHANGE - Cumulative Effect - 91
A772. If non-comparative financial statements are being presented, then the cumulative effect of a change in accounting principle is equal to the difference between the amount of beginning retained earnings in the period of change and what the retained earnings would have been if the accounting change had been retroactively applied to all prior affected periods. It includes direct effects and only those indirect effects that are entered in the accounting records. If comparative financial statements are being presented, then the cumulative effect is equal to the difference between beginning retained earnings in the first period presented and what retained earnings would have been if the new principle had been applied to all prior periods.
274
Q773. REPORTING CHANGES IN AN ACCOUNTING PRINCIPLE - General Rule - 91
A773. The general rule is that such changes should be recognized by adjusting beginning retained earnings in the earliest period presented for the cumulative effect of the change, and, if prior period financial statements are presented, they should be restated (retrospective application). There are, of course, exceptions to this general rule.
275
Q774. 1. Exceptions to the General Rule a. Impracticable to Estimate
A774. If it is considered "impractical" to accurately calculate this cumulative effect adjustment, then the change is handled prospectively (like a change in estimate). An example of a change handled in this manner is a change in inventory cost flow assumption to LIFO. Since a cumulative effect adjustment to LIFO would require the reestablishment and recalculation of old inventory layers, it is considered impractical to try and rebuild those old cost layers. This change is therefore handled prospectively. The beginning inventory of the year of change is the first LIFO layer. Additional LIFO layers are added on from that point forward.
276
Q775. 1. Exceptions to the General Rule a. Impracticable to Estimate
A775. dead
277
Q776. 1. Exceptions to the General Rule b. Change in Depreciation Method
A776. A change in the method of depreciation, amortization, or depletion is considered to be both a change in accounting principle and a change in estimate. These changes should be accounted for as changes in estimate and are handled prospectively. The new depreciation method should be used as of the beginning of the year of the change in estimate and should start with the current book value of the underlying asset. No retroactive or retrospective calculations should be made, and no adjustment should be made to retained earnings.
278
Q777. 2. Applications of the General Rule (3)
A777. a. The amount of cumulative effect to be reported on the retained earnings statement is the difference between: (1) Retained earnings at the beginning of the earliest period presented, and(2) Retained earnings that would have been reported at the beginning of the earliest period presented if the new accounting principle had been applied retrospectively for all prior periods, by recognizing only the direct effects and related income tax effect. b. The new accounting principle is used for all periods presented (prior periods are restated). c. If an accounting change is not considered material in the year of change but is reasonably expected to become material in later periods, it should be fully disclosed in the year of change.
279
Q778. CHANGES IN ACCOUNTING ENTITY (RETROSPECTIVE APPLICATION)
A778. A change in accounting entity occurs when the entity being reported on has changed composition. Examples include consolidated or combined financial statements that are presented in place of statements of the individual companies and changes in the companies included in the consolidated or combined financial statements from year to year.
280
Q779. CHANGES IN ACCOUNTING ENTITY (RETROSPECTIVE APPLICATION) - RESTATEMENT TO REFLECT INFORMATION FOR THE NEW ENTITY (IF COMPARATIVE FINANCIAL STATEMENTS ARE PRESENTED) -
A779. If a change in accounting entity occurs in the current year, all previous financial statements that are presented in comparative financial statements along with the current year should be restated to reflect the information for the new reporting entity.
281
Q780. CHANGES IN ACCOUNTING ENTITY (RETROSPECTIVE APPLICATION) - FULL DISCLOSURE
A780. Full disclosure of the cause and nature of the change should be made, including changes in income before extraordinary items, net income, and retained earnings.
282
Q781. Prior period adjustments consist of: (3)
A781. (i) Corrections of errors in the financial statements of prior periods, (ii) Retroactive restatements required by new GAAP pronouncements, and (iii) Changes from a non-GAAP method of accounting to a GAAP method of accounting (e.g., cash basis to accrual basis), which is a specific correction of an error.
283
Q782. Corrections if the year is presented int the statements
A782. If comparative financial statements are presented and financial statements for the year with the error are presented, merely correct the error in those prior financial statements.
284
Q783. Corrections if the year is NOT presented int the statements (if too old)
A783. If comparative financial statements are presented and financial statements for the year with the error are not presented (e.g., because it is too far back in years), adjust (net of tax) the opening retained earnings of the earliest year presented.
285
Q784. Comprehensive Incom PUFE def.
A784. P ension minimum liability adjustments U nrealized gains and losses (available-for-sale securities) F oreign currency items E ffective portion cash flow hedges
286
Q785. COMPREHENSIVE INCOME
A785. Comprehensive income is the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Net income + Other comprehensive income Comprehensive income
287
Q786. Net income includes the following items: (3)
A786. 1. Income from continuing operations 2. Discontinued operations 3. Extraordinary items
288
Q787. Other comprehensive income
A787. Other comprehensive income includes those items in comprehensive income that are excluded from net income. Prior to the implementation of SFAS No. 130, these types of items were reported as separate line items (components) of owners' equity. SFAS No. 130 grouped all of these items together and called the changes in them for the period "Other Comprehensive Income."
289
Q788. Other comprehensive income (4) special items by nature, for example:
A788. 1. Pension Changes in Funded Status 2. Unrealized Gains and Losses 3. Foreign Currency Items 4. Effective Portion of Cash Flow Hedges
290
Q789. OCI - Pension Changes in Funded Status
A789. Changes in the funded status of a pension plan due to gains or losses, prior service costs, and net transition assets or obligations must be recognized in other comprehensive income in the year the changes occur. All gains or losses, prior service costs, and transition assets or obligations are included in other comprehensive income until recognized as a component of net periodic benefit cost. (Pensions are covered in detail in lecture F-6, later in the course.)
291
Q790. OCI - Unrealized Gains and Losses (3)
A790. The following types of unrealized gains and losses on certain investments in debt and a. Unrealized holding gains and losses on "available-for- sale securities." b. Unrealized holding gains and losses that result from a debt security being transferred into the "available-for-sale" category from "held-to-maturity." c. Subsequent decreases or increases in the fair value equity securities (per SFAS No. 115) are reported as components of other comprehensive income. (All are covered in detail in lecture F-3, later in the course.)
292
Q791. Foreign Currency Items
A791. Foreign currency translation adjustments and gains and losses on foreign currency transactions that are designated as (and are effective as) economic hedges of a net investment in a foreign entity (part of SFAS No. 133 and discussed in the F-7 lecture on derivatives and other financial instruments) are reported as a component of other comprehensive income. (Foreign currency and its related effects are covered in detail in lecture F-2, later in the course.)
293
Q792. Effective Portion of Cash Flow Hedges
A792. Cash flow hedges are part of SFAS No. 133 and are discussed in the F-7 lecture on derivatives and other financial instruments, later in the course. The effective portion of a cash flow hedge is reported as a component of other comprehensive income.
294
Q793. RECLASSIFICATION ADJUSTMENTS
A793. Adjustments for items that are displayed as part of net income for a period that had previously been displayed as part of other comprehensive income are referred to as reclassification adjustments. These adjustments may be displayed on the face of the financial statement in which comprehensive income is reported or disclosed in the notes to the financial statements.
295
Q794. ACCUMULATED OTHER COMPREHENSIVE INCOME
A794. Accumulated other comprehensive income is a component of equity that includes the total of other comprehensive income for the period and previous periods. Other comprehensive income for the current period is "closed" to this account, which is reconciled each period similar to the manner in which retained earnings is reconciled.
296
Q795. 3 format taht can be used for comp income
A795. 1. Below the total for net income in a statement that reports results of operations; 2. In a separate statement of comprehensive income that begins with net income; or 3. In a statement of changes in equity.
297
Q796. Other comp income does not apply to: (for financial statements)
A796. non profs and those that don't have comp. income
298
Q797. if you report other comp income in owner's equity, you must:
A797. you must also report accumulated comp income ( doesn't need to be broken down)
299
Q798. 2 ways to report comp income
A798. Components of other comprehensive income may be reported either (i) net of tax or (ii) before related tax effects with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items.
300
Q799. comp income - INCOME TAX EXPENSE OR BENEFIT
A799. The amount of income tax expense or benefit allocated to each component of other comprehensive income is disclosed either on the face of the statement in which those components are displayed or in the notes to the financial statements.
301
Q800. comp income - interim period reporting
A800. A total for comprehensive income shall be reported in condensed financial statements of interim periods issued to shareholders.
302
Q801. comp income - REQUIRED DISCLOSURES - all three must disclose: (4)
A801. 1. The tax effects of each component included in (current) "Other Comprehensive Income," either as part of the statement presentation or in the notes to the financial statements.★2. The accumulated balances of components of "Other Comprehensive Income" (e.g., pension funded status changes, unrealized holding gains/losses on securities, foreign currency items, and the effective portion of cash flow hedges).★(a) The accumulated balances by component may be shown on the balance sheet, in the statement of changes in equity, or in the notes to the financial statements. ★3. Total "Accumulated Other Comprehensive Income" in the balance sheet as an item of "Equity" (see "required format" on above example).★4. The reclassification adjustments, which are made to avoid double counting in "Other Comprehensive Income" items that are displayed in net income for the current year★(e.g., previously reported unrealized gains on available-for-sale securities that were realized during the current year).
303
Q802. BS - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A802. GAAP requires that a description of all significant policies should be included as an integral part of the financial statements. The preferred presentation is to include the "Summary of Significant Accounting Policies" as the first or second note to the financial statements. Policies presented in other notes should not be duplicated.
304
Q803. BS - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Identify and describe: (4)
A803. Identify and describe: a. Principles and methods b. Criteria c. Policies d. Pricing
305
Q804. BS - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Items not included in this footnote: (5)
A804. Items not included in this footnote: a. Composition of accounts b. Amounts in dollars of account balances c. Details relating to changes in accounting principles d. Dates of maturity and amounts of long-term debt e. Yearly computation of depreciation, depletion and amortization
306
Q805. REMAINING NOTES TO THE FINANCIAL STATEMENTS
A805. The remaining notes contain all other information relevant to decision makers (e.g., investors, creditors, etc.) These notes are used to disclose facts not presented in either the body of the financial statements or in the "Summary of Significant Accounting Policies." Examples of relevant note information include the following:
307
Q806. REMAINING NOTES TO THE FINANCIAL STATEMENTS - List (6)
A806. 1. Changes in stockholders' equity including capital stock, paid-in capital, retained earnings, treasury stock, stock dividends and other capital changes; 2. Required marketable securities disclosure including carrying value and gross unrealized gains and losses; 3. Contingency losses; 4. Contractual obligations, including restrictions on specific assets or liabilities; 5. Pension plan description; and 6. Post-balance sheet disclosures of certain events that occurred before the financial statements were issued.
308
Q807. INTERIM FINANCIAL REPORTING
A807. Interim financial reporting is generally concerned with the quarterly reports that public companies must file with the SEC. Generally accepted accounting principles that were used in the most recent annual report of an enterprise should be applied to interim financial statements of the current year, unless a change in accounting principle is adopted in the current year.
309
Q808. INTERIM FINANCIAL REPORTING - TIMELINESS OVER RELIABILITY
A808. For interim reporting only, timeliness is emphasized over reliability.
310
Q809. INTERIM FINANCIAL REPORTING - AN INTEGRAL PART OF ANNUAL FINANCIAL STATEMENTS
A809. Interim financial statements must be viewed as an integral part of the annual financial statements. Because interim financial statements generally are not audited, each statement presented should be marked "unaudited."
311
Q810. Segment Reporting -
A810. SFAS No. 131 significantly increased the items of disclosure that previously existed in segment reporting. The objective of requiring these disclosures was to provide information on the business activities and the economic environment of a company to help users of the financial statements:
312
Q811. Segment Reporting - List (3) - increases of disclosures
A811. (i) Better understand the enterprise's performance, (ii) Better assess its prospects for future net cash flows, and (iii) Make more informed judgments about the enterprise as a whole. In general, an enterprise is required to report a measure of segment profit or loss, segment assets, and certain related items, but is not required to report segment cash flow or segment liabilities.
313
Q812. Segment Reporting - REQUIRED DISCLOSURES FOR ALL PUBLIC ENTERPRISES (4)
A812. In order to conform with GAAP, financial statements for public business enterprises must report segment information about a company's: 1. Operating Segments (Annual and Interim) 2. Products and Services 3. Geographic Areas 4. Major Customers
314
Q813. Segment Reporting - USE SAME ACCOUNTING PRINCIPLES AS MAIN FINANCIAL STATEMENTS
A813. The required financial statement information is essentially a disaggregation of the entity's regular financial statements. The accounting principles used in preparing the financial statements should be used for the segment information. Segment information presented must be reconciled to the related aggregate amounts in the financial statements.
315
Q814. Segment Reporting - INTERCOMPANY TRANSACTIONS NOT ELIMINATED FOR REPORTING
A814. It is important to remember that transactions between the segments of an enterprise are not eliminated as in consolidation between the parent company and subsidiaries.
316
Q815. Segment Reporting - SCOPE (PUBLIC COMPANIES ONLY)
A815. Segment reporting applies to public companies only. It does not apply to not-for-profit organizations, nonpublic companies, or separate financial statements of members of a consolidated group if both the separate company statements and the consolidated or combined financial statements are included in the same financial report.
317
Q816. OPERATING SEGMENTS A. DEFINITION (3)
A816. (i) That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise), (ii) Whose operating results are regularly reviewed by the enterprise's "Chief Operating Decision Maker" to make decisions about resources to be allocated to the segment and assess its performance, and (iii) For which discrete financial information is available. The definition of a segment depends on how management uses information, which is called the management approach method. For example, management
318
Q817. NOT EVERY ENTERPRISE IS AN OPERATING SEGMENT (2)
A817. Corporate Headquarters Not an Operating Segment A corporate headquarters or certain functional departments may not earn revenues or may earn revenues that are only incidental to the activities of the enterprise and would, therefore, not be operating segments. 2. Pension Plan Not an Operating Segment
319
Q818. Segments may be aggregated if: (7)
A818. (i) aggregation is consistent with the objective and principles of segment reporting, (ii) the segments have similar economic characteristics, and (iii) the segments are similar in: 1. The nature of the products and services, 2. The nature of the production processes, 3. The type or class of customer for their products and services, 4. The methods used to distribute their products or provide their services, and 5. If applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.
320
Q819. QUANTITATIVE THRESHOLDS FOR REPORTABLE SEGMENTS
A819. 1. 10% rule 2. 75% rule 3. 90% rule
321
Q820. 10% rule (3)
A820. Revenue 2. A segment meets the size test if the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of (1) The combined reported profit of all operating segments that did not report a loss, or (2) The combined reported loss of all operating segments that did report a loss. 3. Assets
322
Q821. 75% "Reporting Sufficiency" Test
A821. If the total of external (consolidated) revenue reported by operating segments constitutes less than 75% of external (consolidated) revenue, additional operating segments need to be identified as reportable segments, even if they do not meet the above three tests, until at least 75% of external (consolidated) revenue is included in reportable segments. The practical limit to the number of segments is 10, which is not a precise limit.
323
Q822. 90% "Single Industry Dominance" Test
A822. There is no requirement to report any segment if a single segment accounts for 90% or more of the following combined amounts for all segments: a. Revenue, b. Reported profit or loss, and c. Assets.
324
Q823. SEGMENT PROFIT (OR LOSS) DEFINED
A823. Revenues Less: Directly traceable costs Less: Reasonably allocated costs Operating Profit (or loss)
325
Q824. Items Normally Excluded from Segment Profit (or Loss) (8)
A824. a. General corporate revenues b. General corporate expenses c. Interest expense (except for financial institutions) d. Income taxes e. Equity in earnings and losses of an unconsolidated subsidiary (i.e., under the equity method) f. Gains or losses from discontinued operations g. Extraordinary items h. Minority interest
326
Q825. criterion for income expense allocation
A825. Income and expenses are not allocated to a segment unless they are included in the determination of segment profit or loss reported to the "Chief Operating Decision Maker."
327
Q826. A development-stage enterprise is one in which either: (2)
A826. (i) Principal operations have not yet commenced, or (ii) Principal operations have generated an insignificant amount of revenue (or a loss).
328
Q827. A development-stage enterprise - (5)
A827. must issue the same statements plus A. Identify the financial statements as those of a development stage enterprise. B. In the balance sheet, describe cumulative net losses as "deficit accumulated during the development stage." C. In the income statement, show revenues and expenses for each period being presented, and present a cumulative amount (generally of losses) from the company's inception. D. In the statement of cash flows, include: E. In the statement of stockholders' equity, include the following:
329
Q828. development-stage enterprise -In the statement of cash flows, include:(2)
A828. 1. Cumulative amounts of cash inflows and cash outflows from the company's inception, and 2. Current amounts of cash inflows and cash outflows for each period presented.
330
Q829. In the statement of stockholders' equity, include the following: (5)
A829. 1. Number of shares of stock (or other securities) issued, 2. Dates of issuance, and 3. Dollar amounts assigned. 4. If noncash consideration is involved in the issuance, then include: a. A description of the nature of the consideration, and b. The basis for its valuation.
331
Q830. SFAS No. 157
A830. Before SFAS No. 157 was issued, GAAP standards included different definitions of fair value and little information regarding how to use those definitions. SFAS No. 157 standardizes the definition of fair value, establishes a framework for measuring fair value, and expands fair value disclosures. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and it applies to all other accounting pronouncements that require or permit fair value measurement
332
Q831. SFAS No. 157 exceptions (3)
A831. A. SFAS No. 123(R), Share-Based Payment and related interpretative pronouncements, B. ARB No. 43, Chapter 4, "Inventory Pricing," and C. Accounting pronouncements that permit measurements based on or using vendor-specific objective evidence of fair value. (Note that these pronouncements are beyond the scope of the CPA Exam.)
333
Q832. Fair value: (8)
A832. Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.★1. Fair value is measured for a specific asset or liability, or a group of assets and/or liabilities.★2. Fair value is a market-specific measure, not an entity- specific measure.★3. Fair value is measured in the principal, or most advantageous, market for the asset or liability.★4. Fair value is an exit price (the price to sell an asset or transfer a liability), not an entrance price (the price to acquire an asset or assume a liability).★5. A fair value measure should reflect all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk.★6. Fair value does not include transaction costs, but may include transportation costs if location is an attribute of the asset or liability.★7. The fair value of an asset assumes the highest and best use of the asset.★8. The fair value of a liability should include the liability's nonperformance risk, which is the risk that the obligation will not be fulfilled.
334
Q833. Who is supposed to write GAAP by law ?
A833. It is the SEC, but traditionally the SEC has always allowed FASB to write GAAP
335
Q834. FIrst the SEC gave AICPA the authority promulgate GAAP, and then later on to the APB (Accounting principles boards) What was the name of the committee, which they came up with ?
A834. First they give this authority to the AICPA, then the AICPA came up with the CAP. The committee on accounting procedure writes the accounting research bulletins. Then APB which is the accounting principles board came with their opinions and their interpretations.
336
Q835. Who wrote GAAP after the AICPA and APB ?
A835. It is FASB. And FASB had SFAS and (FIN) financial interpretations. But now in 2011 FASB came along with accounting standards and codifications.
337
Q836. What does the new 2011 ASC (accounting standard codification include and what does it exclude)
A836. ARB, APB opinions, SFAS, technical bulletins are all included. (Everything in category A to D) SFAC are excluded.
338
Q837. What is the SFAC ?
A837. They are the rules for writing rules. They are not GAAP but they give guidance for writing GAAP. Not part of accounting standard codification which is GAAP
339
Q838. What are the pervasive constraints ?
A838. Benefits have to outweigh cost. Then financial statements need to have understandability and decision usefulness.
340
Q839. US GAAP Relevance :
A839. Predictive value Feedback value Timeliness
341
Q840. Verifiability and representational faithfulness.
A840. Verifiability means supported by evidence. That is why you use historical cost. Representational faithfulness emphasizes substance over form. (Capital lease)
342
Q841. Comparability and consistency are related to what ?
A841. relevance and reliability.
343
Q842. Materiality:
A842. error or omission would affect the judgment of a reasonable person.
344
Q843. What affects shareholders Equity ?
A843. Both revenues and expenses and gains and losses affect shareholder equity. Revenues and expenses affect both ongoing major and central operations. But gains and losses affect peripheral and incidental transactions. When you recognize something it means that it ends up on the financial statement.
345
Q844. SFAC 7: USING CASH FLOW INFORMATION AND PV IN ACCOUNTING MEASUREMENTS.
A844. A framework using future cash flows as the basis for accounting measurements at initial recognition, in a fresh start measurement, interest method allocation. Guidance on measurement issues only, recognition issues are not addressed by SFAC 7.
346
Q845. The interest method allocation:
A845. this is reporting conventions that use present value techniques in the absence of a fresh start measurement to compute changes in the carrying amount of an asset or the liability from one period to the next.
347
Q846. Multiple deliverable revenue arrangements
A846. 1)The delivered item has value on a standalone basis. 2)If the arrangement includes a right of return for the delivered item, the undelivered item must be substantially in control of the vendor. If it meets both requirements the revenue arrangement is divided into separate units based on the relative selling prices.
348
Q847. Research and development accounted for on the milestone basis : note the milestone method can only be used in R and D.
A847. The milestone method of accounting may be used in accounting for r and d in which revenue (payments) to the vendor is contingent on achieving one or more substantive milestones related to deliverables or units of accounting. (look at page 55 of textbook for more details). Under the milestone method when substantive milestone is achieve you then get to recognize all of the revenue.
349
Q848. Who is the IASC
A848. The international accounting standards committee, they wrote international accounting standards. (IASC --> IAS, from 1973 to 2001.
350
Q849. In addition the IASC also created the SIC, what is this ?
A849. In addition the IASC also created the SIC, (standard interpretations committee, that provided further interpretive guidance on accounting issues not addressed in the standards.
351
Q850. In 2001 who replaced the IASC ? What is IFRIC
A850. In 2001 the IASB replaced the ISAC. The IASB adopted the IAS and interpretations issued by the SIC. The IASB is responsible for IFRS (international accounting reporting standards) and the IFRIC (international financial reporting interpretations committee) is responsible for issuing interpretations of the standards.
352
Q851. Who is rules based, who is principle based?
A851. US GAAP is more rules based approach (example would be capital lease vs operating lease, follow the OWNS rules based approach). IFRS this is principle based.
353
Q852. What is IASB framework ?
A852. The IASB Framework is very similar to FASB SFAC. The IASB framework are the rules to make rules. The IASB framework is not considered an accounting standard, and therefore does not override any accounting treatment required by the international accounting standards or the IFRS.
354
Q853. Qualitative characteristics under IASB
A853. 1) Understandability 2) Relevance 3) Reliability 4) Comparability
355
Q854. Relevance under IASB?
A854. 1) Predictive Value 2) Confirmatory Value 3) Materiality
356
Q855. Reliability under IASB?
A855. 1) Faithful representation 2) Substance over form 3) Neutrality 4) Prudence 5) Completeness
357
Q856. Constraints under IASB?
A856. 1) Timeliness 2) Benefits > Cost 3) Balance between qualitative characteristics.
358
Q857. FASB SFAC # 6, this contains ten elements of financial statements, what are they ?
A857. Assets, liabilities, equity, investments by owners, distribution by owners, comprehensive income, revenues, expenses, gains and losses.
359
Q858. The ISAB frame work contains only five elements, what are they ?
A858. Asset, liability, Equity, Income and Expenses.
360
Q859. Income under IASB framework ?
A859. An important point to understand is that the definition of income includes both revenues and gains. Revenues arise in the normal course of business and are often referred to as sales, fees, interest, dividends royalties and rent. The IASB framework indicates that gains are increases in economic benefits and are no different in nature from revenues. Hence they are not regarded as separate elements in the framework. The frame work treats losses in the same way, as no different in nature from other expenses. However, the framework also indicates that when gains or losses are reported on the income statement, they are usually displayed separately because this knowledge may be useful to the decision maker. Gains may be reported net of related expenses and losses may be reported net of their related income.
361
Q860. IFRS Revenue recognitions from the sale of goods ?
A860. 1) Significant risks and rewards of ownership of the goods are transferred to the buyer. 2) The entity does not retain either a continuing managerial involvement or control over the goods. 3) The amount of revenue can be measured reliably. 4) It is probable that economic benefits will flow to the entity from the transaction. 5) The cost incurred can be measured reliably.
362
Q861. IFRS Revenue recognitions from the sale of services ?
A861. 1) The amount of revenue can be measured reliably. 2) It is probable that economic benefits will flow to the entity 3) The stage of completion at the end of the reporting period can be measured reliably 4) The cost incurred and the costs to complete the transactions can be measured reliably.
363
Q862. Cost recovery method and installment sales methods regarding IFRS?
A862. If the outcomes cannot be measured reliably then revenue should be recognized using the cost recovery method. Please note that IFRS does not allow the use of completed contract method.
364
Q863. Unearned Revenue:
A863. Debit cash Credit unearned revenue When revenue is then earned you then: Debit unearned revenue and then Credit Earned revenue.
365
Q864. Prepaid Expense:
A864. Debit Prepaid expense Credit cash As prepaid expense expires: Debit Expense Credit Prepaid Expense
366
Q865. Installment Sales method:
A865. Step 1) Sales – COGS = Gross profit. Step 2) And gross profit / net sale = gross profit %. Step 3) cash collection X gross profit % = Realized G.P Step 4) Accounts receivable x gross profit % = Deferred gross profit.
367
Q866. Cost recovery method
A866. Do not recognize any profit till you recover your cost. Also the interest in the cost recover method is added to the initial down payment and the annual installment payments, it’s not treated separately, like in the installment sales method.
368
Q867. Gain or loss contingencies
A867. the GAAP rule for both items is conservatism
369
Q868. Royalties received and unearned royalties, 2 year statements. Tips:
A868. Royalties’ receivable and unearned royalties problems, if 2 year statements are given, compare statements and make a journal entry of the debit or credit.
370
Q869. AP and purchases Tips:
A869. Accounts payable and purchases are on the same side of the credit column. Payments are on the debit side. Beginning and ending AP and purchases are on the credit side.
371
Q870. Installment Sales tips
A870. For the installment sales method to figure out sales for the year, take the deferred gross profit and divide it by the gross profit percentage. For installment sales method to figure out cash collection . Take the GP realized / GP % = cash collection. Remember this is merely the formula for cash collection X GP % = GP realized and worded around.
372
Q871. The SEC has been empowered by Congress to establish
A871. principles for financial reporting by issuers in the US. The SEC has delegated this authority to the FASB.
373
Q872. The SEC enforces the
A872. accounting principles by ensuring that issuers meet certain periodic reporting requirements
374
Q873. The SEC's Division of Enforcement
A873. investigates possible violations of securities laws and prosecutes them in federal court
375
Q874. The Financial Accounting Foundation oversees two other bodies
A874. the FASB and the Financial Accounting Standards Advisory Council (FASAC)
376
Q875. The FASBs due process before issuing final pronouncements
A875. 1. Discuss issues and consider input from interested parties 2. Vote on a final draft proposal 3. If majority of seven board members approve, an Accounting Standards Update is issued
377
Q876. The IASB issues authoritative pronouncements in the form of
A876. International Financial Reporting Standards (IFRSs)
378
Q877. IFRSs are
A877. principles based
379
Q878. US GAAP are
A878. rules based. The FASB is considering a more principles- based approach
380
Q879. GASB is the primary standard setter for
A879. state and local government
381
Q880. Accounting principles for the federal government are issued by
A880. the Federal Accounting Standards Advisory Board (FASAB)
382
Q881. Financial reporting should provide information that is
A881. useful in making business and economic decisions
383
Q882. Characteristics and limitations that are inherent in financial reporting
A882. 1. The information must be quantifiable in units of money 2. The information pertains to individual business entities, not industries or an economy as a whole or individual consumers 3. The information often results from approximate measures 4. The information largely reflects transactions and events that have already happened 5. Financial reporting is but one source of information 6. The benefits of information should be expected to at least equal its cost
384
Q883. Distinguishing characteristics of Not-for-Profit entities
A883. 1. They receive significant resources from providers who do not expect to receive repayment or proportionate economic benefits 2. They have operating purposes other than to provide goods or services at a profit 3. They lack defined ownership interests that can be sold transferred or redeemed; or entitle an owner to distributions upon liquidation of the entity
385
Q884. The FASB identified four key stakeholder groups that are interested in financial reporting by non business entities
A884. 1. Resource providers 2. Constituents 3. Governing and oversight bodies 4. Managers
386
Q885. Three characteristics of the governmental environment distinguish it from the business and not-for-profit environments
A885. 1. The representative form of government and the separation of powers 2. The federal system of government with its hierarchy of national, state, county, and city governments, along with the significant flow of revenues among them 3. The expectations of taxpayers who provide government with revenue, about the services they receive
387
Q886. The structure of government has two inherent control characteristics
A886. 1. The budget as the embodiment of policy decisions and a legally binding control tool 2. The use of fund accounting
388
Q887. Users of financial reporting for governmental type activities
A887. 1. Citizens 2. Legislative and oversight bodies 3. Investors and creditors
389
Q888. The uses of governmental reporting are
A888. 1. Comparing actual results with budgeted amounts 2. Assessing financial condition and operating results 3. Determining compliance with laws, rules, and regulations 4. Evaluating efficiency and effectiveness
390
Q889. Accountability requires that a government justify
A889. how its spends the resources it collects in pursuit of the goals citizens have set for it.
391
Q890. Interperiod equity implies that
A890. current citizens should treat future citizens with respect.
392
Q891. Unless stated otherwise, every business is assumed to be
A891. a going concern that will continue operating indefinitely
393
Q892. Monetary-Unit Assumption - accounting records are kept in
A892. terms of money
394
Q893. Periodicity Assumption- Economic activity can be divided into
A893. distinct time periods
395
Q894. Historical cost principle - transactions are recorded initially at cost because
A894. that is the most objective determination of fair value
396
Q895. Full Disclosure Principle - Financial statement users should be able to assume that financial information that could
A895. influence users' judgment is reported in financial statements
397
Q896. Industry Practice Constraint - Occasionally, GAAP are not followed in an industry because
A896. adherence to them would generate misleading or unnecessary information
398
Q897. Conservatism Constraint - The conservatism doctrine originally directed accountants, when faced with two or more acceptable choices,
A897. to report the lowest amount for an asset or income i.e. lower of cost or market for inventories
399
Q898. Understandability is the quality that allows
A898. a user to perceive the information's significance
400
Q899. Decision usefulness - users must decide for themselves what information is
A899. useful for their particular decisions
401
Q900. Relevance is
A900. the capacity of information to make a difference in a decision
402
Q901. Reliability gives users confidence that
A901. information is reasonably free from error and bias and that it faithfully represents what it purports to represent
403
Q902. Comparability - comparable information enables users to
A902. observe similarities in and differences between economic events
404
Q903. Consistency is
A903. conformity over time with the same policies and procedures
405
Q904. Assets are
A904. probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
406
Q905. Liabilities are
A905. probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events
407
Q906. Equity or Net Assets is
A906. the residual interest in the assets of an entity after subtracting liabilities
408
Q907. Investments by owners are
A907. increases in equity of a business entity
409
Q908. Distributions to Owners are
A908. decreases in equity
410
Q909. Comprehensive income is
A909. the periodic change in equity of a business entity from nonowner sources
411
Q910. Revenues are
A910. inflows of assets or settlements of liabilities from delivering or producing goods, providing services, or other activities that qualify as ongoing major or central operations
412
Q911. Expenses are
A911. outflows of assets or incurrence of liabilities from delivering or producing goods, providing services, or other activities that qualify as ongoing major or central operations
413
Q912. Gains are
A912. increases in equity except from revenues or investments by owners
414
Q913. Losses are
A913. decreases in equity except from expenses or distributions to owners
415
Q914. IFRS Difference The elements of financial statements are
A914. assets, liabilities, equity, income, and expenses
416
Q915. Changes in assets and liabilities with no change in equity
A915. 1. Asset exchanges 2. Liability exchanges 3. Receipt of goods or services with incurrence of payables 4. Settlement of payables with assets
417
Q916. Changes in assets and liabilities with change in equity
A916. 1. Comprehensive income - revenues, expenses, gains, losses 2. Transfers between entity and owners - investments by owners, distributions to owners
418
Q917. Changes in equity with no changes in assets or liabilities
A917. 1. Declaration and distribution of stock dividends 2. Conversion of preferred stock
419
Q918. Accrual accounting involves
A918. recording the financial effects of transactions and other events and circumstances when they occur rather than when their direct cash consequences occur
420
Q919. Accruals anticipate
A919. future cash flows
421
Q920. Deferrals reflect
A920. past cash flows i.e. prepaid insurance
422
Q921. Systematic and rational allocation is
A921. the assignment or distribution of an amount according to a plan or formula
423
Q922. Amortization is a form of allocation. It decreases
A922. an amount by periodic payments or write-downs
424
Q923. Recognition is the formal
A923. incorporation of an item in the financial statements
425
Q924. Realization is
A924. the conversion of noncash resources into money.
426
Q925. Financial statements are
A925. the primary means of communicating financial information to external parties - includes notes, supplementary information, and other disclosures
427
Q926. A full set of financial statements should show the following
A926. 1. Financial position at the end of the period 2. Earnings for the period 3. Comprehensive income for the period 4. Cash flows during the period 5. Investments by and distributions to owners during the period
428
Q927. Recognition criteria determine whether and when items should be
A927. incorporated into the financial statements, either initially or as changes in existing items
429
Q928. Four fundamental recognition criteria apply to all recognition issues
A928. 1. The item must meet the definition of an element of financial statements 2. It must have a relevant attribute measurable with sufficient reliability 3. The information about it must be relevant 4. The information must be reliable Subject to cost/benefit constraint and materiality
430
Q929. According to the revenue recognition principle, revenues and gains should be recognized when
A929. 1. Realized or realizable 2. Earned
431
Q930. Revenues and gains are realized when
A930. goods or services have been exchanged for cash or claims to cash
432
Q931. Revenues are earned when the earning process
A931. has been substantially completed, and the entity is entitled to the resulting benefits or revenues
433
Q932. Expenses and losses are recognized when
A932. a consumption of economic benefits occurs during the entity's primary activities, or an impairment of the ability of existing assets to provide future benefits has occurred
434
Q933. Current (replacement) cost is
A933. the amount of cash that would have to be paid for a current acquisition of the same or an equivalent asset
435
Q934. Current market value (exit value) is
A934. the cash or equivalent realizable by selling an asset in an orderly liquidation (not a forced sale)
436
Q935. Net realizable value is
A935. the cash or equivalent expected to be received for an asset in the due course of business, minus the costs of completion and sale
437
Q936. FASB Conceptual Framework - Recognition and measurement concepts
A936. Financial statements Revenue recognition Expense recognition Measurement attributes
438
Q937. FASB Conceptual Framework - Assumptions
A937. Economic Entity Going Concern Monetary Unit Periodicity
439
Q938. FASB Conceptual Framework - Principles
A938. Historical Cost Revenue Recognition Matching Full Disclosure
440
Q939. FASB Conceptual Framework - Constraints
A939. Cost-Benefit Materiality Industry Practice Conservatism
441
Q940. Regulation S-X
A940. governs the reporting of financial statements, including notes and schedules
442
Q941. Regulation S-K
A941. provides disclosure standards, including many of a nonfinancial nature, also covers certain aspects of corporate annual reports to shareholders
443
Q942. Regulation S-B
A942. applies to small business issuers - reduces disclosure requirements for a small business when it files a registration statement under the 1933 act or reports under the 1934 act
444
Q943. Financial Reporting Releases
A943. announce accounting and auditing matters of general interest
445
Q944. Staff Accounting Bulletins
A944. are issued as interpretations to be followed by the SEC staff in administering disclosure requirements
446
Q945. Form 10-K is
A945. the annual report to the SEC. Must be filed within 60 days of the last day of the fiscal year for large accelerated filers, 75 days for accelerated filers, and 90 days for nonaccelerated filers
447
Q946. Form 10-Q is
A946. the quarterly report to the SEC. Must be filed in 40 days for larger and accelerated filers, and 45 days for nonaccelerated filers
448
Q947. Form 8-K is
A947. a current report to disclose material events
449
Q948. Material events to be reported on Form 8-K
A948. 1. Change in control 2. Acquisition or disposition of a significant amount of assets not in the ordinary course of business 3. Bankruptcy or receivership 4. Resignation of directors 5. A change in the registrant's certifying accountant
450
Q949. Current assets consist of
A949. cash and other assets or resources commonly identified as reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business
451
Q950. The operating cycle is the
A950. average time between the acquisition of resources and the final receipt of cash from their sale as the culmination of revenue generating activities. If <1 year, then 1 year is the period used for segregating current from noncurrent assets
452
Q951. Current assets include
A951. 1. Cash and cash equivalents 2. Receivables 3. Inventories 4. Certain individual trading, available-for-sale, and held-to- maturity securities 5. Prepaid expenses
453
Q952. Noncurrent assets are those
A952. not qualifying as current assets
454
Q953. Investments and funds include nonoperating items
A953. intended to be held the longer of 1 year or the operating cycle
455
Q954. Property, plant, and equipment are
A954. tangible operating items recorded at cost and reported net of accumulated depreciation
456
Q955. Intangible assets are
A955. nonfinancial assets without physical substance, i.e. goodwill and patents
457
Q956. Other noncurrent assets include noncurrent assets not readily classifiable elsewhere such as
A956. 1. Bond issue costs 2. Machinery rearrangement costs 3. Long-term prepayments 4. Deferred tax assets arising from interperiod tax allocation 5. Long-term receivables from unusual transactions, i.e. loans to officers
458
Q957. Current liabilities are
A957. obligations whose liquidation is reasonably expected to require the use of existing resources properly classifiable as current assets, or the creation of other current liabilities
459
Q958. Trade payables for
A958. items entering into the operating cycle, i.e. materials and supplies
460
Q959. Other payables arising from operations, such as
A959. accrued wages, salaries, rentals, royalties, and taxes
461
Q960. Unearned revenues arising from
A960. collections in advance of delivering goods or performing services
462
Q961. Current liabilities do not include
A961. 1. short term obligations if the entity intends to refinance them on a long-term basis and demonstrates an ability to consummate such refinancing 2. Dividends not yet declared 3. Debts to be paid from funds accumulated in noncurrent assets
463
Q962. Working capital =
A962. Current Assets - Current Liabilities
464
Q963. Noncurrent liabilities are those not qualifying as current. The noncurrent portions of the following items are reported in this section of the balance sheet
A963. 1. Noncurrent notes and bonds 2. Liabilities under capital lease 3. Most postretirement benefit obligations 4. Deferred tax liabilities arising from interperiod tax allocation 5. Obligations under product or service warranty agreements 6. Advances for noncurrent commitments to provide goods and services 7. Advances from affiliated entities 8. Deferred revenue
465
Q964. Equity (or net assets for a NFP) is
A964. the residual after total liabilities are subtracted from total assets
466
Q965. Equity consists of
A965. 1. Capital contributed by owners 2. Retained earnings (income reinvested) 3. Accumulated other comprehensive income (all comprehensive income items not included in net income) 4. The noncontrolling interest in a consolidated entity
467
Q966. Treasury stock recorded at cost is
A966. a reduction of total equity
468
Q967. Treasury stock recorded at par
A967. is a direct reduction of the pertinent contributed capital balance, i.e. common stock or preferred stock
469
Q968. The results of operations are reported in
A968. the income statement on the accrual basis using an approach oriented to historical transactions
470
Q969. The traditional income statement records
A969. revenues from and expenses of the entity's major activities and gains and losses from other activities
471
Q970. Net income or loss =
A970. Revenues - expenses + gains - losses
472
Q971. income or loss is closed to
A971. retained earnings at the end of the period
473
Q972. Under the all-inclusive approach to net income
A972. all transactions affecting the net change in equity during the period are included with certain exceptions Transactions not included are transactions with owners, prior period adjustments, items reported initially in other comprehensive income, transfers to and from appropriated retained earnings, adjustments made in quasi reorganization, and effects on prior periods of accounting changes
474
Q973. The single step income statement provides
A973. one grouping for revenues and gains and one for expenses and losses. The single step is the one subtraction necessary to arrive at net income
475
Q974. The multiple step income statement matches
A974. operating revenues and expenses in a separate section from nonoperating items. It enhances disclosure by presenting subtotals
476
Q975. The condensed income statement includes
A975. only the section totals of the multiple step format
477
Q976. Cost of goods sold =
A976. Beginning FG inventory + purchases or cost of goods manufactured = (Goods available for sale) - Ending FG inventory
478
Q977. Cost of goods manufactured =
A977. Beginning WIP + Sum of periodic manufacturing costs - Ending WIP or Ending FG Inventory + COGS - Beginning FG Inventory
479
Q978. Interest expense is recognized based on
A978. the passage of time. In the case of bonds, notes, and capital leases, the effective interest method is used
480
Q979. When an entity reports a discontinued operation or an extraordinary item
A979. it must be presented in a separate section after income from continuing operations 1. Intraperiod tax allocation is required - tax expense or benefit is allocated to continuing operations, discontinued operations, extraordinary items, OCI, items debited or credited direct to other components of equity
481
Q980. The following items are reported separately in the discontinued operations section of the income statement
A980. 1. Income or loss from operations of the component unit (including gain or loss on disposal) 2. Income tax expense or benefit
482
Q981. In IFRS, no items are classified as
A981. extraordinary on the IS or in the notes
483
Q982. Appropriate earnings per share must be disclosed
A982. on the face of the income statement or in the notes
484
Q983. IFRS difference - expenses may be classified by
A983. the nature-of-expense method or the function-of-expense method
485
Q984. The statement of retained earnings displays
A984. 1. Beginning balance of retained earnings 2. Prior period adjustments (net of tax) 3. Adjusted beginning balance 4. Net income (loss) 5. Dividends paid or declared 6. Certain other rare items (quasi-reorganizations) 7. Ending balance of retained earnings
486
Q985. Comprehensive income includes
A985. all changes in equity during a period except those resulting from investments by owners and distributions to owners
487
Q986. Other comprehensive income includes
A986. all items of comprehensive income not included in net income
488
Q987. Cash flow statement - Investing activities include
A987. 1. Making and collecting loans 2. Acquiring and disposing of debt or equity instruments 3. Acquiring and disposing of property, plant and equipment and other productive assets held for or used in the production of goods and services
489
Q988. Cash flow statement - Investing activities exclude
A988. transactions in cash equivalents and certain loans or other debt or equity instruments acquired for resale
490
Q989. Cash flow statement - Financing activities include
A989. 1. Issuance of stock 2. Payment of dividends 3. Treasury stock transactions 4. Incurrence of debt 5. Repayment or other settlement of debt obligations 6. The exercise of share options resulting in excess tax benefits
491
Q990. Information about all investing or financing activities that affect recognized assets or liabilities but not cash flows must be
A990. disclosed outside the body of the statement
492
Q991. The direct method of cash flow statement
A991. converts the accrual-basis amounts in the income statement to the cash basis
493
Q992. Using the direct method, an entity must report, at a minimum
A992. 1. Cash collected from customers 2. Interest and dividends received 3. Other operating cash receipts 4. Cash paid to employees and other suppliers of goods and services 5. Interest paid 6. Income taxes paid and the separately reported amount that would have been paid if excess tax benefits from share based payment arrangements had not been available 7. Other operating cash payments
494
Q993. The indirect method of cash flow statement
A993. reconciles net income of a business or the change in net assets of a NFP entity to net operating cash flow
495
Q994. Consolidated financial statements are used when
A994. one entity holds a controlling financial interest in one or more others. They are required by GAAP
496
Q995. Combined financial statements are used to
A995. combine the statements of the subsidiaries without consolidating them with those of the parent. Are not an allowable substitute for consolidated statements
497
Q996. Examples of OCBOAs are
A996. 1. A basis for tax purposes 2. A basis used to comply with the requirements of a regulator 3. The cash basis and modifications of the cash basis having substantial support 4. A definite set of criteria having substantial support
498
Q997. Cash basis - under the strict basis of accounting,
A997. revenues and expenses are recognized when cash is received or paid regardless of when goods are received or services are rendered
499
Q998. Modified Cash Basis - The modified cash basis uses the cash basis for typical operating activities but
A998. capitalizes items such as inventory and plant assets
500
Q999. Income Tax Basis - Financial statements prepared under GAAP
A999. are not usable for calculating income tax liability
