Flashcards in FAR Deck (321)
When common stock and preferred stock are issued in a lump sump purchase, how is APIC allocated?
APIC for each is allocated by its respective % of the total FMV of the shares x the proceeds.
When is APIC recorded on a stock subscription?
APIC increases on date subscription is recorded – not on the date paid for or issued
How are changes in accounting principle applied?
-Prior Periods adjusted
-Retained Earnings adjusted
-Completed Contract to % Completion
Ex: LIFO to FIFO
What is a serial bond?
Any bond that matures in installments
What items are included in operating activities on the Statement of Cash Flows?
Cash received from Customers, Interest & Dividends, Trading Securities
Cash paid to Vendors, Suppliers, Interest, Taxes, Trading Securities
When is the fair value method used for recording interest in a separate company?
20% Ownership or Less
Accounted for as a purchase
If amount paid is less than fair value, results in a gain in current period
What is a current asset?
Cash plus other assets that are expected to be sold or converted to cash during the current operating cycle
Includes: Demand deposits, cash equivalents, accounts receivable, inventory, prepaids, and short-term investments
What is a 'temporary difference' related to deferred taxes?
GAAP says to recognize a revenue/expense in one period and tax laws say to recognize it in another
Example: Dividends from a subsidiary accounted for using the Equity Method; tax income, but not book income
How are derivatives recorded?
At cost when acquired, re-valued to fair value each period on Balance Sheet.
What is the primary objective of accounting?
To measure income
What expenditures are included in the cost of equipment?
All expenditures to get the asset into 'working condition' and ready for use:
Purchase price + liabilities assumed
Construction loan interest
Any alterations to existing facilities or equipment necessary for the new purchase and installation that extend the life or increase the efficiency of these assets are capitalized.
What is the primary objective of governmental accounting?
To provide information that is useful and benefits a wide range of users including:
Costs of services provided
Sufficiency of revenues to cover costs
Financial position of entity
Which organization's standards are the most authoritative in the hierarchy of international accounting?
The International Accounting Standards Board (IASB)
Which costs are inventoriable?
Purchases - net of discounts
Freight - FOB Shipping point costs go to buyer, FOB Destination costs charged to seller
How are trading securities recorded?
On the balance sheet at Fair Value, as current assets
Unrealized gains/losses are recorded on the Income Statement
If they are reclassified as held-to-maturity or available-for-sale, there is no effect upon transfer.
What are the characteristics of a capital lease for a lessee?
Risk of ownership passes to lessee by:
Bargain Purchase Option (BPO)
Substance: Lease is more than 75% of asset's useful life or PV of minimum lease payments are more than 90% of fair value
Which financial statements are required for not-for-profit organizations?
Statement of Financial Position
Statement of Activities
Statement of Cash Flows
Statement of Functional Expense (Volunteer Health Organizations Only)
At what value should assets contributed to a partnership be recorded? What value for liabilities assumed by the partnership?
Fair Value for assets contributed.
Present value of remaining cash flows for liabilities assumed.
Which personal financial statements are required?
Statement of Financial Condition
Statement of Changes in Net Worth
Would a change from Completed Contract to Percentage of Completion be a change in accounting principle, or a change of estimate?
How would it be applied?
A change of principle.
What is a term bond?
Any bond that matures on a single date
What items are included in investing activities on a Statement of Cash Flows?
Cash received: Sale of PP&E, Sale of Investments, Loan Principle
Cash paid: Loans, Acquisitions, AFS or HTM Securities, Taxes, Trading Securities
When is the equity method used when purchasing another company's stock? How is it recorded?
Ownership 21% to 50%
Gives 'significant influence'
Purchase Price - Par Value = Goodwill
Dividends received from the investee reduce the investment account and are not income
What is a current liability?
A liability expected to be paid within 12 months or less
What is a deferred tax asset?
Deduction will reduce future income taxes expense.
How are unrealized gains/losses on trading securities recorded?
Recorded on income statement
What is the most authoritative set of accounting pronouncements?
The FASB Codification
All announcements fall under the Codification 'umbrella'
How are Research and Development costs recorded?
They are expensed in the period incurred and are not capitalized.
What are the three major types of funds in governmental accounting?