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Module 1 Flashcards

1
Q

Avoidable interest

A

Interest that would have been avoided had the construction project not existed
Moves interest from expense to CIP

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2
Q

Avoidable interest calculations

A

Were the contractor payments even? Divide by 2
If not even then use weighted average method

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3
Q

Value of asset replacement is not known and asset life is extended, not improved

A

Reduce Accum Depreciation

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4
Q

Asset is improved

A

Capitalize improvement

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5
Q

Land cost is everything prior to excavation

A

Legal and title
Fill dirt and swamp draining
Back property taxes (not current)
Building razing

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6
Q

Goodwill - the direct result of a business combination

A

The implied fair value of the company
Compared to
The fair value of the net assets

Goodwill indicates that you paid more and got less

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7
Q

Calculation to get Net assets

A

Assets - liabilities

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8
Q

How to calculate the Goodwill

A

Price paid for the company divided by percentage of the company acquired equals total value of the company

Take that total value of the company minus the amount of the net assets equals the goodwill

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9
Q

Goodwill Impairment

A

The fair value is less than the carrying value
It is tested on each reporting unit and reported individually for each unit
If one unit has extra carrying value, it doesn’t negate the impairment of other units

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10
Q

Goodwill testing time

A

Tests can occur at any point in the year as long as it is consistently tested at the same time every year

Other assets should be tested and any impairments recorded prior to goodwill testing

2020 FASB standard eliminates the calculation of implied goodwill fair value each year

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11
Q

Goodwill impairment JV

A

D Loss of goodwill impairment (IS)
C Goodwill (BS)

Caution- the impairment amount cant be higher than the original goodwill

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12
Q

Income statement vs
Balance sheet

A

I.S. Is the company making money?
B.S. What is the company worth?

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13
Q

Balance sheet left and right

A

Left - debits - Assets
Right - credits - liabilities and equity
Equity is owners capital
Thus they should balance

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14
Q

Balance sheet equation

A

Assets = Liabilities - Equity

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15
Q

Cash
Revenue

A

Cash - asset account debit balance
Revenue - equity account credit balance

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16
Q

Working capital equation

A

Current Assets minus current liabilities

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17
Q

Deferral expense and revenue

A

Cash now
Income statement later

Cash is collected in advance of being earned

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18
Q

Unexpired costs
Expired costs

A

Assets…. Example prepaid insurance
Expenses …. Example prepaid expense

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19
Q

How much was ACCRUAL basis revenue (IS now, cash later)
Cash collected this year was 25K
Begin A/R was 3K and ending was 8K

A

25+ending 8 - beginning 3 = 30
Remember:
3 was earned last year so subtract it
8 is earned this year so add it

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20
Q

DEFERRED revenue - cash to accrual basis
Cash received 400, unearned revenue last year 10, unearned revenue this year 40

A

400 +10 collected last year and earned this year - 40 collected this year and earned next year

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21
Q

Cash to Accrual - Revenue
Accrual revenue - work done (IS) now, cash later
Example - Receivable

A

Add what is earned now and collected later
Subtract what was earned last year and collected this year

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22
Q

Cash to Accrual - Revenue
Deferred revenue - cash now and IS later
Example unearned rent

A

Add what was collected last year and earned this year
Subtract what was collected this year because it will be earned next year

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23
Q

Cash to Accrual - Expense
IS now, pay later

A

Add incurred this year, pd next year

Subtract incurred last year, paid this year

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24
Q

Form 10K filing - Annual
60 days after fiscal year end
75
90

A

60- large accelerated filers
75- accelerated filers
90- all others
Includes disclosures, summary of financial data, MD&A and audited financials

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25
Filing 10Q Quarterly 40 days after fiscal year end 45 days
40 Large accelerated and accelerated 45 all others Contains unaudited financial stnts, interim period MD&A, certain disclosures
26
Classifications Large accelerated Accelerated All others
Large Acc ..700 million or more Acc…. All others…less than 75 million
27
Cash equivalents
US treasury bill
28
Reportable segments
10% of revenue include inter segments sales, ignore corporate headquarters
29
Deferred
Cash now, IS later 2 JV’s same year
30
Accrued
IS now, cash later 2 JVs in different years
31
Net income - retained earnings - stockholders equity all equal relationship
If one is impacted the others are impacted the same direction
32
Pension plan options
Defined contribution plan Defined benefit plan-promises a defined retirement benefit, the employer assumes the risk so most companies don’t offer it
33
Pension plans Defined contribution plan
Defined contribution plan (ex 401 K) The employer has no liability and the employees has to direct the investments
34
Pension plans require two financial stnts
1 Statement Of net assets available for benefits (like a balance sheet) Assets, liabilities, net assets 2 Statement of changes in net assets available for benefits (like IS) Additions, deductions, net increase net assets
35
Research question
Codification Advanced search Key phrase searches the exact phrase
36
Financial statement primary users
Investors Lenders Other creditors
37
Objective of financial reporting
Provide information to external users useful for economic decision making
38
Fundamental qualitative characteristics
Relevance and faithful representation
39
Fundamental qualitative characteristic Relevance
Predictive value Confirmatory value Materiality
40
Fundamental qualitative characteristics Faithful representation
Complete Neutral - free from bias Free from error
41
Enhancing qualitative characteristics V Cut Make the information more “useful”
Verifiabikity Comparability Understandability Timeliness Applied in NO prescribed order SFAC 8
42
SFAC 8
Financial reporting objectives Business
43
Assets - liabilities = equity Equity is…
The residual interest in the assets of a company
44
Net realizable value
Closing the company-disposing of assets and asset value is less than historical cost
45
Current market value
Same as fair value- price to sell (not acquire) the asset
46
Multi step income statement - income from continuing operations
Reports revenues and expenses separately from non operating revenues and expenses and other gains and losses
47
Single step Income Statement - income from continuing operations
Total expenses ( including income tax expense ) are subtracted from total revenues … thus it’s a “single step” Multi step better for calculating financial ratios
48
Classified balance sheet
Distinguishes current and non-current assets and liabilities
49
5 steps to revenue recognition
1. Identify the contract 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the price to the obligations 5. Recognize revenue as each performance obligation is met
50
Rules of contracts (5)
1. Approved by all parties 2. Contain parties rights 3 . payment terms 4. Have commercial substance 5. Be probable that the entity will collect all that is owed
51
Contract costs When are they assets or expenses?
Assets if the entity expects to recover them and are directly related to a contract Expenses is they are borne whether or not the contract is obtained
52
Repurchase agreements
Contract in which an entity sells and asset and has a promise or option to later repurchase the asset
53
Repurchase agreement types
Forward - obligation to repurchase Call option- right to repurchase at entity’s option Put - right to repurchase at customer’s option
54
Bill and Hold agreements
Revenue recognized prior to customer receiving product There has to be a substantive reason for holding the product, it must be separately identified and ready for transfer to the customer
55
Right to return - booking revenue
If the customer has a right to return 1. Book the sale revenue 2. A refund liability 3. And an asset related to the subsequent product recovery
56
Long term construction Percentage of completion
Recognize revenue over the term of the construction project 4 step process
57
Long term construction Completed contract
Recognize revenue on the completed project This does not match revenue and expenses over the term
58
Long term construction losses
Under both contract types/ losses are recognized immediately
59
Discontinued operations accounting
1. Gain/loss on current operations 2. Gain/loss on sale 3. Impairment loss Reported after continuing operations Shown net of tax in the year incurred
60
Accounting changes - change in estimate Prospective or Retrospective
Prospective - change in the current period and future, no prior period adjustment (this was not an error) Example: fixed asset life adjustment
61
Change in fixed asset depreciation METHOD Prospective or Retrospective?
Its a change in principle, but it’s treated according to change in estimate rules So it’s Prospective
62
Change in accounting principle Prospective or Retrospective
Retrospective- a change in principle Affects retained earnings Adjust beginning retained earnings, net of tax, in the statement of retained earnings If adjusting inventory only look at the balance sheet balances for the ending year given
63
Exceptions to change in principle- retrospective entries
When it is impractical to estimate the change to retained earnings for restatement then it is treated prospective Ex: inventory method change TO LIFO to anything else and fixed asset methods
64
Accounting changes - error corrections Reporting
Reported net of tax in the statement of retained earnings
65
Statement of Comprehensive Income Comprehensive income is:
All changes in owners equity other than transactions with owners Net income (net income already includes the tax rate) plus other comprehensive income equals comprehensive income
66
OTHER comprehensive income definition
Revenues, expenses, gains, losses included in comprehensive income but excluded from Net Income under GAAP…. Five sources of it are PUFI
67
Other comprehensive income PUFI These are items excluded under net income per GAAP
P-pension adjustment U - unrealized gains/losses on Available for Sale (not trading) securities and hedges F - foreign currency translation. Items I - instrument specific credit risk *apply the tax rate to these items- tax effect must be disclosed in the stmt or the notes
68
Accumulated other comprehensive income is the sum of…
The sum of all other comprehensive income components (PUFI) This is an owners equity item
69
Reporting - statement of comprehensive income
GAAP allows for 1 statement Stmt of Income and Comprehensive Income Or 2 statement Stmt of Income immediately followed by Stmt of Comprehensive Income
70
The JV to accrue revenue -
Record a receivable
71
JV to accrue expenses Income statement now, pay later
Record accrued liability, accounts payable, or wages payable
72
Adjusting journal entries When an entry was recorded to a revenue/expense account that should have been an asset/liability account
1. Must be recorded by the end of the fiscal year 2. Never involve the cash account 3. Will hit one income stmt acct and one balance sheet acct
73
Costs and Unexpired Costs
Costs are expenses in this period Unexpired costs are costs that expire in future periods- example fixed assets and depreciation method Module 1.2
74
Unexpired costs are assets Expired Costs are expenses
When unexpired (asset) goes to expired (expense) then it goes balance sheet to income stmt Example: inventory to cost of good sold Net book value of fixed asset to depreciation expense
75
Gross concept and net concept Gross concept definition
This is normal operating activity Revenue and expenses - reported at gross (all transactions)
76
Gross concept and net concept Net concept definition
This is non-operating activity Gains and losses - reported NET Ex: the sale of property, you don’t report the sale price, you report the net of the transaction or the gain/loss This includes sale of non-inventory, write downs, write offs
77
Payment on a contract Receivable, asset, liability?
Receivable if terms met and only waiting on payment (only waiting on passage of time) Asset arrangement net, but waiting on something other than the passage of time Liability the customer pays before the task is met
78
Accounting change of estimate examples
Change fixed asset life Adj year end accrual of salaries Write down obsolete inventory Nonrecurring IRS adj Settlement of litigation Changes of accounting principle that apply here - depreciation- change from LIFO
79
Contract modification
A contract modification is a change in price or scope or both
80
Current assets include
Cash minus any income in sinking funds A/R minus any allow for doubtful Inventory Investments in trading securities
81
Liabilities include
Deposits received from customers Unearned rents

FAR (17 decks)

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