FAR (Round 2 Deck)

Question 1

If it doesn’t qualify to go under ________ on the income statement then you should leave it in Continued Operations

Answer 1

Discontinued Op’s

Question 2

Sales 250K, Purchase discounts 3K, Recovery of previously written off AR for 10K. What would be reported as revenue?

Answer 2

250K

Question 3

When should gains and losses be recorded?

Answer 3

In the period that they actually occur

Question 4

Comprehensive Income is defined as NI + OCI. So a common example of something that wouldn’t flow through either of these would be?

Answer 4

a dividend payment (Debit - RE, Credit - Cash)

Question 5

Anytime you are doing a currency transaction gain/loss calculation what should be the thought process?

Answer 5

What was the rate on the date of ordering/purchase. What should that JE have been? then at year end when you report what was the spot rate on the reporting date. Are you going to have to pay more/get paid more if payment had to occur in that moment at year end and that’s how you directionally if you are in a gain or loss.

Question 6

Anytime you are making an entry that is a cash flow out, but the expectation is you’ll get it back (like a deposit) then you’ll record it as a ________ in the JE

Answer 6

noncurrent asset

Question 7

Even if a gain is both unusual and infrequent where should it go under per U.S. GAAP?

Answer 7

“Income from continuing operations”

Question 8

Where does depreciation expense fall on the income statement

Answer 8

Under Selling, General, and Administrative

Question 9

Guiding light on if you need to include a disclosure on an expense?

Answer 9

If its considered “unusual”

Question 10

Principles for accounting for discontinued operations?

Answer 10

• Does it qualify as held for sale? -> Then account for it by itself
  -ALL operating losses should be included (not just from date that the decision to sell was made)
  -Determine if impairment is needed at year end by taking the expected selling price less the net book value. If you are going to sell for less than its worth impair
  -Determine tax income Benefit/ (Expense). If you have a loss you’ll get a benefit (loss * tax rate). If you have a gain you’ll get an expense (gain * tax rate).

Question 11

1) Walk through parts on a multi-step income statement
2) How are prior year adjustments handled?
3) Where would gains on AFS debt securities go?

Answer 11

1) GP -> OI -> IFCO -> IBDO -> NI
2) Flow through Retained Earnings
3) OCI

Question 12

Quoting an exchange rate using direct method means what?

Answer 12

You say my currency is _____ to 1 unit of the foreign currency.

Question 13

Comprehensive Income (NI + OCI) show’s you all the income from __________ sources

Answer 13

Non-owner

Question 14

Foreign TRANSACTION gains/losses vs Foreign TRANSLATION gains/losses go where

Answer 14

Transaction (buying/selling and will affect cash flows) go on the income statement. Translation (from consolidating a foreign sub) go in OCI

Question 15

OCI doesn’t include what kinds of activities?

Answer 15

Equity (Dividends or exchanges involving stock)

Question 16

What’s gonna go in OCI?

Answer 16

Foreign Translation gain/losses, unrealized gain/losses on AFS debt securities, Pension, Cash flow hedge (not FV).

Question 17

if you need to make a Disclosure for accumulated OCI. Where would you show those adjustments (Statements or footnotes) ?

Answer 17

in the statement where OCI items are at. NOT in the footnotes.

Question 18

Inventory will go where on the BS?

Answer 18

In current assets

Question 19

For a Form 8-K what will NOT show up on it?

Answer 19

Quarterly result of operations (They’ll be on the 10-Q)

Question 20

When talking about EPS what events are treated in your calculations as if they had occurred at the beginning of the fiscal year?

Answer 20

Stock Dividends and Stock Splits

Question 21

On a Basic EPS calc whats the key formula you need to remember?

Answer 21

NI less Preferred Stock Dividend Requirement giving you NI available to C.S. DIVIDED by average CS

Question 22

How do you treat dilutive EPS?

Answer 22

You reduce the EPS by convertible securities that would have reduced EPS but you DO NOT increase the EPS by convertible securities that would make it larger

Question 23

Calculating EPS 1st can you do the weighted share calculation, how do you set it up?

Answer 23

1 column is a running balance of shares, 2nd column is the number of months/12 that the balance was applicable, 3rd column is a recalculation multiplying the balance by the months proportion fraction of a year, add them all together and those are the share’s you’ll use

Question 24

10K maximum # of days after fiscal year end that the company can take to file?

Answer 24

75 (because its not quite double the time of q which you can take 40 days on. Exception on the q is small corps that can take 45)

Question 25

In addition to the most recent quarter end, for which of the following periods is the company required to present balance sheets on Form 10-Q?

Answer 25

"The end of preceding fiscal year"

Question 26

What kind of shares are not included in the EPS calculation?

Answer 26

Preferred Shares

Question 27

What makes a dilutive security?

Answer 27

One that produces an EPS below basic earnings per EPS

Question 28

All potentially dilutive ___________ _________ and ______ ______ are used in computing diluted EPS

Answer 28

convertible bonds and preferred stock

Question 29

Why do you need to worry about the tax effect for dilutive securities (bonds that can convert to stock)

Answer 29

Because the NI figure you are using already accounted for its tax when you think of the multi-step income

Question 30

What are appropriated retained earnings, in the sense of what's their purpose?

Answer 30

To disclose to Shareholders that some of the retained earnings are not available to pay dividends because they are restricted for plant construction.

Question 31

What is shown as a contra equity account?

Answer 31

Treasury Stock

Question 32

Are dividends in arrears shown as a liability or simply disclosed?

Answer 32

disclosed

Question 33

You've got 80K to pay for 1000 CS shares and 2000 Convertible shares (Par value $20 & $20 respectively) with FV's of $36 & $27 respectively. What amounts should be allocated to the Convertible shares?

Answer 33

1st get the totals of the FV of each kind of share so (1000*36 for CS and 2000*27 for Convertible totaling $36,000 and $54,000 respectively). 2nd add together to get a total ($90,000) then find an applicable % rate (36K/90K & 54K/90K) which is 40% and 60% respectively. 3rd since we want the Convertible its 60% * 80K = $48,000

Question 34

Explain what happens with gains/losses related to treasury stock transactions and the income statement?

Answer 34

1) the gain's and losses never flow through the income statement. 2) any gains will hit APIC and any losses will hit APIC to the extent of an available balance and then to RE's

Question 35

Par Value method how do you know when on the repurchase if you are gonna need to hit RE's?

Answer 35

Use the same $/share on APIC in the repurchase that you used on the original purchase as well as the par value for the treasury stock and if you need a plug then you'll hit retained earnings!

Question 36

You are making a property dividend. Carrying Value is 60K, FMV on date of declaration is 78K, what is the effect of this property dividend after all nominal accounts are closed?

Answer 36

Close (18K gain less 78K now FMV shows a net loss of 60K which will flow through to RE's.

Question 37

No par but $1 stated value shows. How do you handle it?

Answer 37

Account for it like it was the par value and do # of shares * that stated value and put it as a credit to CS

Question 38

What is a liquidiating dividend?

Answer 38

Its the amount in excess of RE's that is available to be distributed to shareholders

Question 39

Stock dividends are not recorded as income on the books of the _________?

Answer 39

Recipient

Question 40

What accounts (JE format) are being hit when a stock dividend is made?

Answer 40

Debit RE's, Credit CS, Credit APIC

Question 41

How is a stock dividend (less than 20-25% of stock outstanding) handled via JE's?

Answer 41

Debit RE's, Credit CS, Credit APIC

Question 42

For a Lease or a Bond in finding the Carrying Value what will you need to generate?

Answer 42

An Amortization Table

Question 43

Amortization Table for Lease or Bond what are the general Columns you'll need and what do they represent?

Answer 43

Carrying Value (PV of future payments) [final column], lease Expense [actual payment], Interest expense, remainder that is the amortization

Question 44

OWNES what does it stand for and the applicable % rates?

Answer 44

Ownership transfers, Written purchase option, Net PV of minimum lease payments will be 90% or more of the assets value, Expected term is 75% or more of the life of the asset, Specialized such that it couldn't be used for anything else.

Question 45

When should you begin recognition of lease expense?

Answer 45

The commencement date. Which is the date that the underlying asset is made available for the lessee to use

Question 46

For lease expense if the rates are going to fluctuate over the periods how do you determine what the lease expense should be?

Answer 46

Find the average rate per month and expense that amount (should be done on a straight-line basis)

Question 47

Alright on an a lease with payments at the beginning so its an ordinary annuity due, how does this differ from a regular lease amortization table?

Answer 47

your first line will be just the payment with NO Interest being taken out, then the pattern is the same going forward.

Question 48

If a lease is classified as a finance lease over what time period should you amortize the property?

Answer 48

The economic life of the asset

Question 49

Finance lease with a written purchase option how do you handle it?

Answer 49

find the PV of the lump and add to the PV of the payments

Question 50

Amortization expense on leases/bonds and its relation to the amortization table (4 columns)?

Answer 50

It doesn't have anything to do with the table in terms of a columns Pmt, Int, Reduction. Rather the carrying value you first determine is divided by useful life (for finance leases) or the time of the lease (for operating leases)

Question 51

REMEMBER "OHHHHHHH. The amortization expense is paired with the ROU! whereas the table for carrying value is related to how we determine what the corresponding lease liability is! two halfs of the same coin."

Answer 51

Contemplate this principle

Question 52

What do you need to remember to add to the ROU before amortizing it if applicable?

Answer 52

The Direct Costs

Question 53

Time period's key takeaways when calculating Initial Carrying Value vs Amortization expense?

Answer 53

The carrying value is always using the annuity value for the time period of the lease and same with the residual value you discount. But on the amortization expense side, if its a finance lease, you do it over the life of the asset (which may be longer than the actual lease).

Question 54

Whats the rule for amortization of leasehold improvements?

Answer 54

Should be over life of improvements or the remaining life of lease, WHICHEVER IS SHORTER

Question 55

Corp issues $4 million of 10-year, 3% bonds at 101. There are 200,000 detachable stock warrants. Each warrant allows bondholder to purchase 1 share no par common stock for $12 per share. On date of issuance the FV of the stock warrants is $1 a piece. By what amount did the long-term debt increase?

Answer 55

($4million *1.01 = 4,040,000 less the FV of warrants (200K *1) = 3,840,000

Question 56

Whats the full JE for a bond issued at 98 with maturity value of $50000?

Answer 56

Debit cash for 49K, Debit discount on bond for 1K, 50K Credit Bond's Payable.

Question 57

If you don't have seasonal fluctuations in your business, what effect will that have on your reporting in the 10Q?

Answer 57

You won't need to show the most recent quarter compared to the same quarter from the PY

Question 58

How many columns should be in an amortization table for bonds vs a lease?

Answer 58

Bonds (5) vs Lease (4)

Question 59

Explain what each of the 5 columns on a bond amortization table represent and how you calculate them?

Answer 59

column 5 is the carrying value which is computed as the actual cash paid for the bond on day 1, Column 1 is the cash interest that is going to be paid (coupon rate on the bond * Face Value on the bond), Column 2 is the bond interest expense which is the market rate multiplied by the carrying value, column 3 is the discount/premium which is the Rx difference between column's 1 & 2, column 4 is the amortization of the discount with the first row being calculated by finding the difference between the Face value of the bond vs the Carrying Value (which is what was actually paid for it).

Question 60

The PMT column for a bond is also the _________ __________ recorded?

Answer 60

Interest Payable

Question 61

Dilutive securities. How do you know if its dilutive?

Answer 61

1) Its got to be convertible into shares and 2) Usually this is a convertible bond and you are trying to calculate what the saved interest (after tax) is / (divided by) the number of shares issued. SO rate*value of bond*(1-tax rate) / number of shares that will be converted into

Question 62

If you have a debit balance in AP from paying a supplier for goods to be manufactured how should this be reconciled at year end?

Answer 62

Increase AP for the debit balance and then move it with a debit to prepaid asset

Question 63

How do you classify short-term debt that is expected to be refinanced (and is done so before financials are issued)?

Answer 63

Long-term debt

Question 64

ARO (Asset Retirement Obligation) what do you record when an asset with this is placed into service?

Answer 64

You get the PV of the future expense and record it as a liability, and then you don't touch the expense account.

Question 65

What is the accretion expense (ARO)?

Answer 65

Its the increase to the ARO liability due to the passage of time

Question 66

How do you calculate accretion expense (ARO)?

Answer 66

Beginning ARO * Risk-adjusted rate

Question 67

Income Statement line item for "Income (loss) from discontinued operations. How do you calculate this?

Answer 67

Impairment loss of components assets + all the years losses for the division Plus the tax savings (tax rate * all the losses just mentioned).

Question 68

Contingent liabilities are unique because?

Answer 68

Unlike most GAAP where we need to be on the conservative end for this we would record the lowest value in a range of values that are equally likely.

Question 69

If you see a contingent liability and they describe it as "Reasonably Possible" instead of "Probable" than

Answer 69

Only a disclosure is required

Question 70

Gain contingencies that are probable with a range of awards are treated in the financials with?

Answer 70

A note disclosure only

Question 71

If the contingent liability is probable but the loss is NOT reasonably estimatable then?

Answer 71

You would only disclose this in the financials

Question 72

Interim Financials vs the prior year financials. What's important about GAAP (principles) used?

Answer 72

That they be consistent and the same unless there was a change in principle used which would need to be disclosed.

Question 73

What account is debited for Imputed interest on a non-interest bearing note?

Answer 73

Interest Expense

Question 74

When find the PV of a note there will be a difference between what the face value says. How do you handle this difference?

Answer 74

its a direct reduction from the face amount of the note

Question 75

Normally interest is imputed when no (or an unreasonably low) rate is stated. An exception exists for ________ & _________ when the terms do no exceed 1 year.

Answer 75

Receivables and Payables

Question 76

What's the rule for recording liabilities for the same amount of $10000 with one due in less than a year (customary trade terms) vs one due in 2 years?

Answer 76

The one less than a year is recorded at face value. The one over a year (in this case 2) is recorded at its PV.