Part 1 - Financial Reporting Flashcards
Structure of Comprehensive Income
-Net Income: The statement starts with net Income.
-Other Comprehensive Income (OCI): Lists revenues, expenses, gains/losses that are not included in NI. OCI includes (net of tax must):
* Adjustment for pension plans (e.g. Prior service cost not recognized in net periodic pension cost)
* Cash flow hedges, foreign currency items, and instrument-specific risk.
* Unrealized gains and losses on available-for-sale DEBT securities.
-Total Comprehensive Income: It is the sum of NI & OCI and represents the total change in equity from non-owner sources. For example, unrealized loss on investments in non-current marketable equity securities or nonmonetary exchanges of common stock for productive assets.
Thus, comprehensive income excludes dividends paid to stockholders (owner source)!
An unrealized loss on a TRADING security will be recorded
as a loss on the income statement, which will reduce net income and comprehensive income.
Unrealized holding loss from available-for-sale-DEBT-securities is a component of
Other comprehensive income (then becomes part of accumulated OCI), which is NOT included in net income. Therefore, it would cause earnings differ from comprehensive income.
How do you report accumulated other comprehensive income and other comprehensive income (under all formats)?
- The tax impact of each component included in the current year’s other comprehensive income must be reported.
- The changes to the accumulated balances per component can be shown either on the face of the financial statements or in the footnotes.
- Report total accumulated other comprehensive income on the balance sheet as an item of equity.
Accumulated Other Comprehensive Income will be increased by
the amortization of the acturial loss on pension plan assets.
Items can be included in balance of accumulated other comprehensive income at year-end:
Beg. Balance of AOCI
(-) Foreign currency translation loss
(+) Unrealized gain on available-for-sale debt security.
(+) Amortization of actuarial pension cost
How do you report an unusual and infrequent gain under GAAP?
an unusual and infrequent gain should be reported as income from continuing operations but on a pretax, NOT net of tax, basis.
Note: It affects comprehensive income indirectly as a compenent of net income.
Comprehensive Income must NOT be shown
on the face of the income statement. It maybe shown on the face of combined “statement of income and comprehensive Income “ a separate section below net income, or in a separate “statement of comprehensive income” that follows the income statement.
How do you account Gains and losses from changes in fair value of foreign currency transaction hedges?
Gains and losses from changes in fair value of foreign currency transaction hedges are accounted for in earnings as are other fair value type hedges.
They are reported in other comprehensive income ( foreign currency transaction hedges used to hedge a “net investment” in a foreign operation)
What are selling expenses?
Selling Expenses:
Advertising
Freight out
Rent for Office space
Sales Salaries and comissions
Freight in is a part of COGS!
What are administrative expenses?
Administrative Expenses:
Accounting and Legal Fees
Officers Salaries
Insurance
Income from continuing operations are:
Net Sales (+)
COGS (-)
Selling expenses (-)
Admin expenses (-)
Interest expense (-)
Gain on debt extinguishment (+)
What is form 8-K reporting requirements to SEC?
-The creation of obligation under an off-balance sheet arrangement of a registrant.
-Changes in securities issued (including sale of equity securities.
-A change in a registrant accountans (a significant change).
Basically, the form reports on major corporate events, including corporate asset acquisitions/disposals,
accountant changes, financial statement changes, management changes, changes in securities, etc.
10-K filing deadlines:
60 days large accelareted filer Over $700M
75 days an accelerated filer equal or > $75M
90 days non-accellareted filer
10-Q filing deadline:
40 days accelerated & large accelareted filer
45 days small corps
60 days Large corps
(10-Q contains unaudited financial statements US GAAP, MD&A and Financial disclosures)
A company operates in an industry that is not subject to seasonal fluctuations that could have a significant impact on its financial condition. 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?
Due to the absence of seasonal fluctuations, the end of the preceding fiscal year is the appropriate period to include in addition to the most recent quarter end.
How do you treat preferred dividends when calculating EPS?
Preferred shares are not included in the EPS calculation.
EPS = NI - Preferred dividends / Weighted Shares Outstanding
EPS disclosures required by SEC filers for:
-Stock options
-Stock warrants
-Convertible securities
-“Contingent stock” agreement
When you calculate DILUTED EPS,
Dilutive convertible bonds and preferred stock are used to calculate DILUTED EPS!
Nonconvertible preferred stock is not included in DILUTED EPS calculation.
interest expense (net of income tax) on convertible debt should
be added back to the numerator for diluted EPS if the effects are dilutive.
When calculating BASIC EPS purchased treasury shares (buyback) are
subtracted from shares to calculate weighted average shares outstanding for BEPS.
Where do public companies present EPS?
All public companies must present EPS on the face of the income statement;
Simple capital structure company: EPS for income continuing operations and income are presented.
Complex capital structure company: BEPS & Diluted EPS presented for income from continuing operations and net income.
What do appropriated retained earnings for a construction mean?
APPROPRIATED R/E for a construction mean that some of the RE are not available to pay dividends to the share holders because they have been restricted for a new office or plant construction. When the construction completed, it should be restored to unappropriated retained earnings.
