Financial Acct Standards Flashcards
(134 cards)
1
Q
What are the first 3 Steps of the FASB Standard Setting Process?
A
- Project gets added to the agenda
- Research, then discussion memorandum
- Public Hearing is held
2
Q
What are the last 3 steps of the FASB standard setting process?
A
- Evaluate research and comments from interested parties
- Modify exposure draft if needed
- Finalize standard by a Majority 4 out of 7 vote
- Issue Standard or ASU
3
Q
GAAP addresses what 3 Main Aspects of Reporting
A
- Recognition: when an item is recorded on the financial statements
- Measurement: how
- Disclosure: explaining anything not on the statements
4
Q
Faithful Representation
A
- Completeness: All necessary facts are present
- Neutral: Free from Bias
- Free from Error: Info doesn’t contain material errors
5
Q
Relevance
A
- Predictive Value: does it help make future predictions
- Confirmatory Value: Does it CONFIRM or provide info about earlier predictions
- Material: Is it relevant
6
Q
Enhancing Characteristics
A
- Comparability: Can the info be used to compare other companies in the same industry
- Verifiability: Info is verifiabile if a competent third party could reach the same conclusion
- Timelines: Received in time to make a difference to the user
- Understandability: understandable for most acct people
7
Q
Define Net Realizable Value
A
Net realizable value is the net value to be received, after the costs of getting the asset ready for sale are deducted.
Or the Amount expected to be received from a customer in the case of AR
8
Q
Accrual Accounting: Accrual to Cash Formula
A
^Cash= ^L + ^E - ^OtherAssets
9
Q
Accrual Accounting: Cash to Accrual Formula
A
^Cash= -^L + ^E + ^OtherAssets
10
Q
Held to Maturity Valuation
A
Traditionally valued at Historical Cost, but can be elected at Fair Value
11
Q
Fair Value Defined
A
Priced Received when selling and asset or price paid when transferring a liability. it is an EXIT PRICE
12
Q
What is the Highest and Best Use?
A
- What is physically possible
- What is financially possible
- What is legally possible
NOT how the firm uses it
13
Q
Cash Collected On Accts Receivable
A
Beginning balance \+ sales - collections - write offs = ending balance
14
Q
Foreign Private Issuers
A
Since 2008, foreign private issuers in the U.S. markets can file their financial statements using IFRS issued by the IASB.
15
Q
SEC Pronouncements
A
The main pronouncements published by the SEC are the Financial Reporting Releases (FRR) and the Staff Accounting Bulletins (SAB).
16
Q
Foreign Private Issuer Requirement
A
A. More than 50% of the outstanding voting securities are directly or indirectly owned by residents of the U.S., and
B. Any of the following:
The business of the issuer is administered principally in the U.S.
More than 50% of the assets of the issuer are located in the U.S.
The majority of its executive officers or directors are U.S. citizens or residents.
Rule 205, Securities Act 1933
17
Q
10-Q Balance Sheet
A
Must show current fiscal quarter and the end of the preceding fiscal year
18
Q
Accelerated Filers for Forms K
A
$75 Million, but less than $700 million…75 days
> $700 Million … 60 days (40 days for Q)
19
Q
Regulation S-X
A
Governs the form and content of financial statements and financial statement disclosures
20
Q
IFRS Foundation Umbrella
A
International Accounting Standards Board.
IFRS Interpretations Committee.
IFRS Advisory Council.
21
Q
IFRS Foundation
A
Like the Financial Accounting Foundation (FAF) in the states, the IFRS foundation is in charge of funding and to take account of, as appropriate, the needs of a range of sizes and types of entities in diverse economic settings
22
Q
IASB Standard Setting Process
A
1) Add the item to the Working Agenda (IV),
2) Discuss the issue (V),
3) Prepare the Discussion Paper (III),
4) Publish the discussion paper (VII)
5) Issue the Exposure Draft (II)
6) Analyze comments to the Exposure Draft and (I)
7) Issue the IFRS (VI)
23
Q
SME (small and medium entity)
A
- Does not have public accountability
- Publishes financial statements for external users
- No EPS or info by segement necessary
- No LIFO
- Goodwill must be amortized
24
Q
IFRS Hierarchy
A
- the requirements in IFRS dealings with similar or related issues;
- the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework;
- the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature, and accepted industry practices, to the extent that these do not conflict with IFRS or the Framework.
25
IFRS Statement of Financial Position
Current and Non-current Assets and Liabilities
26
Total Asset Calculation
Dont forget to subtract depreciation
27
RE Calculation
```
Revenues - Expenses
- Income Tax Expense
=Net Income
+ BEG RE Balance
= END RE Balance
```
28
Selling Expenses
1. Freight Out (Delivery Service)
2. Advertising
3. Sales Commissions and Salaries
4. Any rent associated with Sales
29
Gain Contingencies
Contingencies are accrued and recognized as a liability when the occurrence of the liability is probable and the amount can be reasonably estimated. Reasonably possible is only 50% and not accrued
30
Cost of Goods Manufactured
Cost of goods manufactured ?
Plus finished goods beginning inventory $400,000
Less finished goods ending inventory (360,000)
Equals COGS $240,000
COGM = 200,000
31
Comprehensive Income Components
1. pension liability adjustments
2. Unrealized gains and losses for AFS securities
3. foreign curreny translation gains/losses
4. gains and losses on hedging
32
Statement of Changes in Equity
1. Not Required
| 2. Reconciles all of the beginning and ending balances in the equity accounts
33
Statement of Cash Flow Disclosures
1. Conversion of Debt to Equity must disclosed
| 2. Cash flow per share must NOT be disclosed
34
Financing Cash Flows
Borrowings and procees from stock issuance, retirements of debt, treasury stock purchases, and dividends paid...however INTEREST PAID is an operating cash flow
35
Financing Equipment Cash Flows
1. Down payment- investing activity outflow
| 2. Payments- financing activity outflow
36
Main Point of GAAP
decision usefulness
37
INELIGIBLE FOR FAIR VALUE
NOT available for...
1. Investments in Consolidated Entities
2. Pensions and employee oriented plans
3. Lease Related Financial Assets or Liab
4. Demand deposits
5. Instruments that are components of Equity
38
DETERMINING FAIR VALUE
CARRYING VALUE - FAIR VALUE
| RECOGNIZE AS A WRITE UP OR WRITE DOWN
39
SEC REPORTING REQUIREMENTS
IPO- A COMPANY HAS TO SUBMIT
1. TWO YEARS OF BALANCE SHEET
2. 3 YEARS FOR OTHER FINANCIAL STATEMENTS
ISSUER > UNDERWRITER> DEALER> PUBLIC
40
Private Company Council
The PCC works with the FASB to set PC standards
Alternative Accounting Options for Private Companies
1. interest rate swaps- variable rates to fixed rates
2. VIE criteria to common controlled leasing arrangements
3. Accounting for certain intangibles in business combination
4. Allows Private Companies to amortize goodwill over a period to not exceed 10 years
41
Personal Financial Statements
A Statement of Financial Condition (Balance Sheet) is always included in a set of personal financial statements, and a Statement of Changes in Net Worth may be included, but is not required.
42
Can Comprehensive Income be shown net of Taxes?
Components of other comprehensive income can be shown either net of tax-related effects or before tax-related effects with the aggregate income tax effects shown as one amount.
43
What is an example of Systematic and Rational Expense Allocation?
Amortization of intangible assets are recognized in a Systematic and Rational manner, which should be recognized by most unbiased accountants. Depreciation as well
44
How should a company report its decision to change from a cash basis of accounting to accrual basis of accounting?
Error corrections are recorded by recording a prior period adjustment net of tax to the beginning balance of retained earnings for the earliest period presented. Cash basis accounting is not an acceptable method of accounting under generally accepted accounting principles. Therefore, if a change is made from the cash basis to the accrual basis of accounting, it is considered a correction of an error.
45
Interest payments to lenders and other creditors are categorized as:
Cash Flows from Operating Activities
46
Under IFRS reporting, prior period errors include the following:
```
Arithmetic Mistakes
Recognition Mistakes
Incorrect application of policies
Disclosure Mistakes
Measurement Mistakes
```
BUT NOT Changing of Accounting Policies...
47
Fair Value Truths
1. Once fair value is elected it is irrevocable
2. Must be applied to all interests in the same entity
3. Must be applied to the whole instrument, but on a instrument by instrument basis
48
In a statement of cash flows, which of the following would increase reported cash flows from operating activities using the direct method? (Ignore income tax considerations.)
Answer: Dividends received from investments
SC Topic 230 specifically states that dividends received from investments be reported separately under operating activities when the direct method is used.
49
Extraordinary Items
Must be both unusual and infrequent...and reported separately as a component of income, net of applicable income taxes
If an item meets one but not both of these criteria, it should be presented separately as a component of income from continuing operations (but not net of tax). Whether it is a gain or a loss does not affect this presentation.
50
Prepaid Account Adjustments
Beg Balance of Expense
- Current Expense
+ X (cash Disbursements)
= End Balance of Expense
51
How should Start-Up Costs and Organization Costs be treated under GAAP?
Expensed Immediately...
52
When is the Deposit Method to be used?
1. Until the sale is consummated, when all activities necessary for closing have been performed.
2. If the buyer’s initial and continuing investments are not adequate to demonstrate a commitment to pay for the property and the seller is not reasonably assured of recovering the cost of the property if the buyer defaults.
53
When is the reduced Profit Method used?
he reduced profit method is used only when the initial investment is adequate to demonstrate a commitment to pay for the property but the continuing investments are not.
54
When is the Cost Recovery Method Used.
The business does not recognize any income related to a sale transaction until such time as the cost element of the sale has been paid in cash by the customer. Once the cash payments have recovered the seller's costs, all remaining cash receipts (if any) are recorded in income as received. Use when collection of a receivable is uncertain
55
When is the Full Accrual Method used?
The full accrual method may be used only if profit on the sale is determinable, the earning process is virtually complete, and all of the following:
1. A sale is consummated.
2. The buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property.
3. The seller’s receivable is not subject to future subordination.
4. The seller has transferred to the buyer the usual risks and rewards of ownership in a transaction that is, in substance, a sale and does not have a substantial continuing involvement in the property.
56
AVERAGE DAYS IN SALES INVENTORY
365/INVENTORY
57
QUICK RATIO
cash + net AR + marketable securities
| divided by current liabilities
58
INVENTORY TURNOVER RATIO
COGS / AVERAGE INVENTORY
59
ACCOUNTS RECEIVABLE TURNOVER
Net credit sales /
| Average net accounts receivable
60
INVENTORY TURNOVER
COGS /
| AVERAGE INVENTORY
61
QUIK ASSETS
Quick assets include cash, cash equivalents, trading securities, accounts receivable and other current assets readily convertible to cash. Quick assets exclude inventories and prepaids.
62
COGS CALCULATION
BEG INV + PURCHASES - END INV = COGS
63
Book Value / Share
total owners' equity divided by the number of shares outstanding:
64
Return on Assets
Net income by Average Total Assets
65
Asset Turnover
Sales / Average Total Assets
66
Cash and Cash Equivalents
Cash or cash equivalents...maturities of less than 3 months...
1. US Treasury Bills
2. Commercial Paper
3. Money Market Funds
67
Cash Bank Account Reporting
Accounts from different banks cannot be offset
Segregated Accounts are non current assets if going into a sinking fund
Overdrafts are current liabilities
68
Bank REC Formula
Take the balance on the bank statement
1. ADD: Deposits in transit
2. ADD: Cash on hand
3. LESS: Outstanding checks
4. +/-: Errors made by the bank
ii. EQUALS: the true ending cash balance
69
FOB Shipping Point
Buyer pays shipping costs
70
FOB Destination Point
Seller pays shipping costs
71
AR Allowance Method: Income Statement Approach
Estimate as a direct % of sales...directly calculates the BAD DEBT expense
72
AR Allowance Method: Balance Sheet Approach
Estimate based on a % of the A/R oustanding balance...directly calculates the ending balance amount of the allowance account
73
Interest Method: Interest Revenue Recognition
recognizes interest revenue each year until the note is collected because the note was written down to present value when the impairment was recorded
74
Cost Recovery: Interest Revenue Recognition
Recognizes interest revenue only after cash equal to the new carrying value is collected
75
When is a Note considered impaired?
If the present value of the remaining cash flows is less than carrying value,
76
Are inventory write-offs included in COGS?
```
No. Inventory writeoffs are subtracted from COGS
BEG INV
+Purchases
- END INV
- Writeoff
=COGS
```
77
COGS alternate calculation
Raw materials purchased $430,000
Plus decrease in raw material 15,000*
Direct labor 200,000
Factory overhead 300,000
Less finished goods increase (35,000) **
Cost of goods sold $910,000
78
What is the Financial Maintenance Concept?
(1) traditional financial statements (including net income) and (2) the full set of financial statements (including comprehensive income), discussed in the conceptual framework. Under this concept, a return on investment (defined in terms of financial capital) results only if the financial amount of net assets at the end of the period exceeds the amount at the beginning after excluding the effects of transactions with owners.
Under a physical capital concept, a return on investment (in terms of physical capital) results only if the physical productive capacity (or the resources needed to achieve that capacity) at the end of the period exceeds the capacity at the beginning after excluding the effects of transactions with owners. The physical capital concept requires many assets to be measured at current (replacement) cost
79
How States and Governments report their balance sheet position?
Net position or fund balances...NOT equity
80
Who establishes GAAP? And who enforces it?
The private sector body FASB establishes GAAP, however the SEC enforces those principles by ensuring that issuers meet certain periodic reporting requirements.
81
Who establishes Accounting Principles for Federal, State and Local Governmental Bodies?
These principles are issued by the Federal Accounting Standards Advisory Board (FASAB) established in 1990.
82
What is a distringuishing characteristic for Not-For-Profit, Non Governmental Entities?
No single indicator of performance, such as net income for business entities
83
How many objectives of Financial Reporting by Not For Profit, Nongovernmental entities
5
84
What are the Two Inherent Control Characteristics of the Government Environment
The two inherent control characteristics of the governmental environment are
(1) the implications of a budget as the expression of policy decisions and as a legally binding control tool
(2) the use of fund accounting.
85
What does the concept Interperiod Equity mean?
It implies that current-year revenues should be sufficient to cover current-year services
86
The two principles that underpin financial accounting under the FASB are?
Revenue Recogniton and Match
87
What defines Faithful Representation?
One that is complete, neutral, and free from material error.
88
FORM 10-Q must be filed by how many days...
By 40 days for large accelerated filers ($700 mill or more)
| By 45 days for non-accelerated filers (less than $75 mil
89
What is the role of the Financial Accounting Standards Advisory Council (FASAC)
(FASAC) advises on priorities and proposed standards and evaluates the FASB’s performance.
90
What are the 5 elements of IFRS Financial Statements
Assets, Liabilities, Equity, Income, and Expenses
91
What are the 10 elements of GAAP Financial Statements
1. Assets
2. Liabilities
3. Equity
4. Investments
5. Distributions to Owners
6. Comprehensive Income
7. Revenues
8. Expenses
9. Gains
10. Losses
92
Form 8-K must filed when...
a material event occurs such as:
1) changes in control of the registrant, (2) the acquisition or disposition of a significant amount of assets not in the ordinary course of business, (3) bankruptcy or receivership, (4) resignation of a director, and (5) a change in the registrant’s certifying accountant.
93
Current Receivables are expected to be collected within....
The current operating cycle or 1 year, whichever is longer.
94
General & Admin Expenses
accounting, legal, and other fees for professional services; officers’ salaries; insurance; wages of office staff; miscellaneous supplies; utilities costs; and office occupancy costs.
95
Statement of Comprehensive Income (OCI)
Only if the entity has OCI...does it need to report it...
(1) two separate but consecutive statements and (2) one continuous statement. One continuous statement must have two sections: net income and other comprehensive income (OCI).
96
NonCancelable Rights
Must be reported at current fair value IF:
1) are for fixed or determinable amounts; (2) are not contingent on the holder’s life expectancy or the occurrence of a particular event, such as disability or death; and (3) do not require the future performance of service by the holder. The fully vested rights in the company-sponsored pension plan therefore should be reported at their current value, which is equal to the $90,000 discounted amount.
97
Current Liabilities Under IFRS
Financial liabilities under IFRS are current if they are due to be settled within 12 months even if (1) the original term was for more than 12 months and (2) an agreement to refinance on a long-term basis was completed after the balance sheet date and before the issuance of the financial statements. Thus, both notes are current, and the amount excluded from current liabilities is $0.
Under GAAP Current Liabilities are excluded
a. Company intends to refinance the obligation on a long-term basis.
b. Company has the ability to refinance
98
Extraordinary Items
Unusual in nature and Infrequent in Occurrence
Reported Separately on its own
If only one requirement is met, it is reported separately but part of Income from Continuing Operations
99
Statement of Financial Condition: Limited Business Activity Not In A Separate Entity
For an investment in a limited business activity not conducted in a separate business entity (such as an investment in real estate and a related mortgage), the assets and liabilities must be presented as separate assets at their estimated current values and separate liabilities at their estimated current amounts rather than as a net amount. This presentation is particularly important if a large portion of the liabilities may be satisfied with funds from sources unrelated to the investments. A business interest constituting a large part of an individual’s total assets must be presented in a personal statement of financial condition as a single amount equal to the estimated current value of the business interest. This investment should be disclosed separately from other investments if the entity is marketable as a going concern. Thus, the realty and the related mortgage should be presented as separate amounts at $1,000,000 and $200,000, respectively, and the sole proprietorship should be disclosed separately as a single amount equal to $1,640,000 ($1,800,000 – $160,000).
100
How are change in estimates reported?
On a prospective basis
An example of an item for which an estimate is necessary is the service life of a depreciable asset. The effect of a change in accounting estimate is accounted for in the period of change, if the change affects that period only, or in the period of change and in future periods, if the change affects both. Accordingly, the change is not retrospectively applied. If the change affects more than one future period, required disclosures are the effect on (1) income from continuing operations, (2) net income (or other appropriate captions), and (3) any related per-share amounts for the current period. Pro forma effects on prior periods are not reported.
101
What is used as the control number for determing whether potential common shares are dilutive or antidilutive
company reports discontinued operations or extraordinary items, it uses income from continuing operations (in Pubco’s case, income before extraordinary item), adjusted for preferred dividends, as the control number for determining whether potential common shares are dilutive or antidilutive.
102
Personal financial statements usually consist of
Personal financial statements must include at least a statement of financial condition.
A statement of changes in net worth and comparative financial statements are recommended but not required.
A personal statement of cash flows is neither required nor recommended.
103
What are the conditions for recognizing Revenue under IFRS?
(1) The entity has transferred the significant risks and rewards of ownership,
(2) the entity has neither continuing management involvement to an extent associated with ownership nor effective control over the goods,
(3) the amount of the transaction can be reliably measured,
(4) it is probable that the economic benefits will flow to the entity, and
(5) transaction costs can be reliably measured.
104
5 Elements of Present Value
(1) estimates of cash flows, (2) expectations about their variability, (3) the time value of money (the risk-free interest rate), (4) the price of uncertainty inherent in an asset or liability, and (5) other factors (e.g., liquidity or market imperfections). Fair value encompasses all these elements using the estimates and expectations of participants in the market.
105
When is the interest method most likely to be applied?
The interest method is mostly likely to be applied when (1) the transaction is a borrowing and a lending; (2) assets or liabilities similar to those being accounted for are allocated using the interest method; (3) the asset or liability has closely related, reasonably estimable cash flows; or (4) the initial measurement was at present value.
A typical example of the interest method is the amortization of the discount or premium on bonds.
106
What are the items included in Summary of Significant Accounting Policies?
basis of consolidation, depreciation methods, amortization of intangibles, inventory pricing, recognition of profit on long-term construction-type contracts, and recognition of revenue from franchising and leasing operations
107
What are the following criteria to be considered an operating segment?
Revenue equal to or greater than 10% of total revenue
Profit equal to or greater than 10% of the total profit
Assets greater than 10% of total assets
AND MUST REPORT TO THE CHIEF OPERATING DECISION MAKER
108
How are market price declines of Invetnory reported?
unless the decline is expected to be restored by the end of the fiscal year. This loss was not expected to be restored in the fiscal year, and the company should report the dollar amount of the market price decline as a loss in the first quarter. Inventory may never be written up to an amount above its original cost.
Therefore Inventory price recovery is limited to what to what previous recognized losses were
109
How should an entity estimate its Interim Income Tax Provisions for a particular quarter?
They should use the Effective Tax Rate expected to be applicable for the full year as estimated at the end of the second quarter.
110
What are subsequent events?
Subsequent events are events or transactions that occur after the balance sheet date and prior to issuance (or availability for issueance) of the financial statements.
111
Define a Financial Instrument
(1) imposes on one entity a contractual obligation (a) to deliver cash or another financial instrument to a second entity or (b) to exchange financial instruments on potentially unfavorable terms with the second entity, and (2) conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first entity or (b) to exchange other financial instruments on potentially favorable terms with the first entity
112
How does IFRS recognize Inventory Losses?
Under IFRS, but not U.S. GAAP, the lower-of-cost-or-NRV rule applies to inventory measurement for an interim period even if a market decline is expected to reverse by year end.
Under GAAP a company can defer an inventory loss if they expect this loss to be reversed by the end of the year.
113
What is the required disclosures in GAAP for transactions between interrelated parties?
(1) the nature of the relationship involved; (2) a description of the transactions for each period an income statement is presented and such other information as is deemed necessary to an understanding of the effects of the transactions; (3) the dollar amounts of transactions for each period an income statement is presented and the effects of any change in the method of establishing their terms; (4) amounts due from or to related parties as of the date of each balance sheet, including the terms of settlement; and (5) certain tax information required by GAAP if the entity is part of a group that files a consolidated tax return.
114
What are the major categories of Disclosure?
One set of unquantified disclosures relates to the nature of operations: major products or services, principal markets, industries in which the entity operates and the relative importance of each, and the basis for determining the relative importance.
A second type of disclosure concerns the use of estimates in the preparation of financial statements. The statements must explain that conformity with GAAP requires management to use numerous estimates.
A third category concerns certain significant estimates. Disclosure of an estimate used to value assets, liabilities, or contingencies is required when the estimate is subject to a reasonable possibility of change in the near term and the effect of the change will be material.
A fourth set of disclosures concerns current vulnerability due to concentrations, for example, when entities fail to diversify. Disclosure is necessary if management knows prior to issuance of the statements that the concentration exists at the balance sheet date, it makes the entity vulnerable to a near-term severe impact, and such impact is at least reasonably possible in the near term.
115
Changes in Accounting Principles on an Interim Basis
A change in accounting principle is not permitted to take effect in an interim period if it is impracticable to differentiate between the cumulative effect of the change on prior years and the period-specific effects on prior interim periods of the year of the change.
116
IAS 34 Inventory Requirements
IAS 34 states that complete inventory-taking and valuation may not be required at interim dates. Estimates based on sales margins may suffice for quarterly reports
117
How are Subsequent Events that were known of before the balance sheet date reported?
Subsequent events like a law suit that the company was aware of before the balance sheet date, but were settled after and before the issuance of financial statements MUST BE RECOGNIZED on the current statements.
Subsequent events however, like an earthquake that happened after the balance sheet date but were completely unknown during the current year only need to be disclosed.
118
What are the Cash Basis Financial Statement Names
Assets and liabilities arising from cash transactions” and “revenue collected and expenses paid.”
119
What are the Cash Basis Financial Statement Names
Assets and liabilities arising from cash transactions” and “revenue collected and expenses paid.”
120
Under IFRS, are potential voting rights considered in assessing influence?
Yes, Under IFRS potential voting rights are always considered when assessing influence. Under GAAP they are NOT.
121
What are some examples of events requiring either remeasurement at fair value or or initial recognition of fairvalue?
Examples of events requiring either remeasurement at fair value or initial recognition of eligible items and that result in an election date are
(1) a business combination,
(2) a consolidation or deconsolidation, or
(3) a significant modification of debt.
A consolidation requires an initial recognition in the consolidated statements of eligible items on the books of the subsidiary but not measurement of those items at fair value. A business combination involves an initial recognition of the assets acquired and liabilities assumed, with measurement at fair value. However, an investment in a subsidiary required to be consolidated is not itself an item eligible for the FVO
122
How are AFS and Trading Securities reported?
Trading securities are measured at fair value. Thus, the bonds should be reported at $1,020,000. NOTE: Available-for-sale-securities also are measured at fair value. But unrealized gain and losses are recognized in other comprehensive income, not earnings.
123
What is a liquidating dividend and how does it impact the carrying amount and Net Income?
A liquidating dividend occurs when the total accumulated dividends received by the investor since the date of acquisition exceed the investor’s proportionate share of the investee’s net accumulated earnings during that time. A liquidating dividend is treated as a reduction in the carrying amount of the investment rather than as dividend income.
124
What are the acceptable standards for Comprehensive Income formatting of the statement?
1. In a single continuous statement of comprehensive income
| 2. in two separate but consecutive statements (an income statement and a statement of OCi
125
3 Essential Characteristics of a Liability
A liability has three essential characteristics:
(1) It represents an obligation that requires settlement by a probable future transfer or use of assets,
(2) the entity has little or no discretion to avoid the obligation, and
(3) the transaction or other event resulting in the obligation has already occurred.
126
Disclosure of Significant Account Policies
Disclosure of significant accounting policies is required when
(1) a selection has been made from existing acceptable alternatives;
(2) a policy is unique to the industry in which the entity operates, even if the policy is predominantly followed in that industry;
(3) GAAP have been applied in an unusual or innovative way.
Basis of consolidation
Depreciation methods
Amortization of intangible assets (excluding goodwill, which is not amortizable)
Inventory pricing
Recognition of profit on long-term construction-type contracts
Recognition of revenue from franchising and leasing operations
Policy for determining which items are cash equivalent
127
Interim Reporting Consideration
Under U.S. GAAP, each interim period is viewed as an integral part of an annual period to which it relates. Thus, an inventory loss from a market decline may be deferred if no loss for the year is reasonably anticipated.
Under IFRS, each interim period is viewed as a discrete reporting period. Accordingly, an inventory loss from a market decline must be recognized in the interim period even if no loss for the year is reasonably anticipated.
128
Election of Fair Value
The decision to elect the FVO is final and cannot be revoked unless a new election date occurs. For example, an election date occurs when an entity recognizes an investment in equity securities with readily determinable fair values issued by another entity. A second election date occurs when the accounting changes because the investment later becomes subject to equity-method accounting. An original decision to classify the equity securities as available-for-sale may then be revoked at the second election date by choosing the FVO instead of the equity method.
129
What are the Criteria for Control deemed to be surrendered?
Three criteria must be met:
(1) The transferred assets are beyond the reach of the transferor and its creditors;
(2) transferees may pledge or exchange the assets or interests; and
(3) the transferor does not maintain effective control through, for example, (a) an agreement to repurchase or redeem the assets prior to maturity, (b) an ability unilaterally to benefit from causing the holder to return specific assets, or (c) an agreement making it probable that the transferee will require repurchase.
130
A/R BALANCE SHEET METHOD
ESTIMATES ENDING BALANCE OF ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
131
A/R INCOME STATEMENT METHOD
ESTIMATES THE BAD DEBT EXPENSE DIRECTLY
132
What is the Approach called to Accounting for the Transfer of Financial Assets?
The accounting for a transfer of financial assets applies a financial-components approach based on control. After a transfer, an entity recognizes the assets it controls and the liabilities it has incurred; derecognizes assets it no longer controls; derecognizes extinguished liabilities; and, if the transfer qualifies as a sale, recognizes any gain or loss in earnings.
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RECEIVABLE FACTORING
One means of immediately realizing cash on accounts receivable is factoring, which is the outright sale of receivables for cash at a discount. Receivables may be sold with or without recourse. If the sale of receivables is with recourse, the buyer may obtain payment from the seller if the debtor defaults. Factoring is the discounting of receivables on a nonrecourse, notification basis.
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ASSIGNMENT OF RECEIVABLES
An assignment involves a contractual transfer of specifically named accounts receivable to a third party. The receivables are collected by the assignor, but the cash must be paid to the assignee.
