Review-Time FAR Study Cards Flashcards
(88 cards)
1
Q
What is the Memory Tool for Allowance for Doubtful Running Balance?
Beginning balance in Allowance for Doubtful Accounts is a $2,000 credit. During the year, it writes off $1,500 in bad debts and recovers $500 previously written off. What is the ending balance in the Allowance for Doubtful Accounts?
A
Metal Bucket of Money labeled Allowance for Doubtful. When you w/o a bad debt, you pull some money out of the bucket(debit). If they end up paying, you add some money back. For every CY Allowance, you add money to the bucket.
$1000 Ending Balance
2
Q
What are the 3 types of ARO Measurement to establish the ARO?
Two items impacted when re-measured?
A
1a. Fair Value Measurement: The estimated cost to settle the obligation
1b. Discounting: Discounted to Present Value, using a credit-adjusted risk-free rate that should reflect the credit risk associated with the obligation
1c. Capitalization of ARO: liability is capitalized as part of the carrying amount and amortized over the useful life
2a. Carrying Amount increases over time as an expense. Called Accretion of the Discount
2b. When the ARO goes up, so does the Cost to Retire the Asset.
3
Q
What are the Financial Statement Titles under Cash Basis?
A
Statement of Assets and Liabilities - Cash Basis
Statement of Revenues Collected and Expenses Paid - Cash Basis
4
Q
What specific items hit OCI:
A
Pension Adjustments
AFS Debt: Securities, Hedges
Instrument Specific Credit Risk
5
Q
What specific debt/security instruments are included in OCI
A
6
Q
OCI Income reported net or before tax?
A
Either: If B/4 then aggregate income tax
7
Q
Direct Method when quoting an item in foreign country
Example: British sells to Japan. How do I say that 1 Pound equates to 1.59 Yen?
A
Say: 0.63Pounds = 1 Yen because the buyer’s currency must equal 1
8
Q
KEEP REVIEWING EPS/DILUTIVE EPS AND DIVIDEND SPLITS FOR ALL STOCK TYPES
A
9
Q
Large Accelerated Filers Timelines
Accelerated Filers Timelines
A
10
Q
Why would sale of TS at less than cost result in a net increase of Stockholder’s Equity?
A
Cash Received from Sale increases SE even as loss on sale reduces RE
11
Q
Are changes in Warranty and Useful Life considered changes in Estimate or Principle?
A
12
Q
How do Dividends interact with the following to get the Numerator?
Convertable Stock
Convertable Bonds
Preferred Stock
Cumulative Pref Stock
Participating Stock
A
13
Q
What are the different approaches to measure Fair Value?
A
14
Q
When do you use Fair Value instead-of Equity Method?
A
15
Q
Tell me about the different types of Government Funding Accounts?
A
16
Q
How do you determine BV per share on repurch of c/s when you have no $ amounts to go on?
A
Cost to Repurch / Shares Repurched
BV per Share depends on if Repurch was < BV
If that’s the case, then BV per share goes up as does the Ratio
17
Q
Bonus Payout before income taxes and after bonus:
Branch was $160K, payout 25% bonus for over $100K
How much is the bonus?
A
160-100 x 25%
60,000 - Bonus x 25%
60000 x 125%
60,000*1.25 = 75,000
Finally, 75,000 - 60,000 = 15K for bonus
18
Q
Tell me about Proprietary and Fiduciary Funds
A
19
Q
How do you Calc-in a New Partner?
A
20
Q
How is the carrying amount of an asset held for sale initially measured?
A
The initial measurement of an asset held for sale is at the lower of its carrying amount and fair value less costs to sell.
21
Q
What are the three types of intercompany eliminations?
A
Intercompany debt: Eliminates any loans offsetting notes payable and receivable, interest expense and interest income usually by a centralized treasury department
Intercompany revenue and expenses from interco sales.
revenues, cost of goods sold, and profits are all eliminated. Usually when a company is vertically integrated
Intercompany stock ownership which Eliminates the ownership interest of the parent company in its subsidiaries
22
Q
What is the primary purpose of a valuation allowance for deferred tax asset?
What does the reduction of the valuation indicate?
A
To reflect the likelihood of realizing tax benefits
An increase in realizing the tax benefit
23
Q
A major customer declares bankruptcy after the balance sheet date but b/4 financials are issued. What level of subsequent even is this?
A
Type I. Increase the Allowance for Doubtful Accounts to reflect the increased credit risk tied to the receivable.
Impacts BS and IS
24
Q
How is the consideration of Inventory different under Cash vs Accrual Basis?
A
Cash basis treats Inventory as an expense when purchased.
Accrual treats Inventory as an Asset when purchased and an Expense when sold using COGS
25
How do you determine Compensation from Stock Options?
Fair Value of the Options split over the Vesting period
26
FAR1A3001 What is the impact of recording items in OCI on a company's net income?
This is kind of a trick question because it presents as an error but because it doesn't specify there's an error, we assume it's asking if you should do this thing.
The correct answer is: No Direct Impact on Net Income
27
How are prepaid expenses recorded in modified cash basis accounting?
In modified cash basis accounting, prepaid expenses are often treated similarly to accrual accounting, being expensed over the period they benefit.
28
FAR2E30012
Whats the journal entry to record the investor's share of the investee's profit under the equity method?
B. Debit Income from Investment; Credit Investment
The investor’s share of profit increases the carrying value of the investment (credit) and is recognized as income (debit).
29
FAR2I10002
How is a stock dividend recorded when it's less than 25% of the existing shares?
Retained Earnings for the market value of the dividend and
credit common stock dividend distributable and
Credit common stock for the par value.
30
FAR2A10027
A company discovers that a recorded check payment for $500 was actually a check for $50. What is the correct reconciliation action?
The company has overstated its expenses by $450 in the general ledger, so it should deduct $450 from the general ledger balance (D).
Adding or deducting the amount from the bank statement balance (A and B) is incorrect because the bank statement reflects the actual amount of the check. Adding $450 to the general ledger balance (C) would further increase the discrepancy.
31
Restate this sentence so that it reflects the rule regarding Valuation Allowance of deferred tax asset.
The effect of a change in the opening balance of a valuation allowance that results from a change of circumstances ordinarily is included in income from operations.
A change in circumstance that results in a change in judgement concerning potential realization of a deferred tax asset should be recognized in Income from Cont Ops in the period which it occurs.
32
If ending inventory is overstated, which of the following is true?
a) Gross Margin understated
b) COGS overstated
c) RE overstated
d) Cost of goods Available for Sale overstated
RE overstated because overstating inventory means COGS is understated. Since COGS reduces Retained Earnings, this means RE wasn't reduced enough.
In other words, you sold more than you thought, you paid more than you thought which means you made less profit than you thought.
33
How do I calculate the EPS when given:
Seven percent convertible bonds issued at par with each 1000 bond convertible into 40 shares of common stock
Tax rate of 30%
1000 x .07 x (1-.30) = 49 for NAICS
40 new shares so
49/40. = 1.22
34
For basic EPS:
1) How do I calculate the Preferred Stock Dividend Requirement
2) how does this calculation impact NIACS?
3) what do i do with the dividends paid number
4) what about arrears?
For example:
Preferred Stock is $10 Par, 4% Cumulative, 25,000 shares issued and outstanding
16,000 dividends were paid to preferred stock
1) To determine the dividend requirement: Par * # of shares * percent.
10* 25,000 *.04 = 10,000
2) deduct this amount from Net Income
3) arrears —for basic EPS ignore the dividends paid amount
4) for Basic EPS only use the dividends for that period.
35
When calculating Dilutive EPS
1) what do I do with the convertible bond stuff?
2) what do I do with the preferred dividends that were paid on convertible stock?
3) what if the convertible bonds showed current year amortization?
Convertible Bonds: Add back the Interest expense based on rate x Face value
Then subtract the tax according to the amount
Preferred Dividends: ignore those because it’s like they never existed if converted
Add back the Amortization for the period and make sure it’s hit with tax just like the interest expense
36
Assuming constant inventory quantities, which of the following inventory-costing methods will produce a lower inventory turnover ratio in an inflationary economy?
FIFO would have the highest inventory balance and lowest COGS
Inventory Turnover is COGS/Average Inventory
When the denominator is higher, the ratio will be lower
37
At what point are dividends booked as a liability? How do you report until then?
When they are declared. Until then, its a disclosure.
If Cumulative, make sure to include all years in Arrears
38
Calc Retained Earnings:
Y1 Ending is $300K
Y2 Ending is $60K
Gain on sale of T-Stock under Cost is $20K
RE = $360K
Gain on T/S hits APIC and only hits RE with loss that exceeds APIC balance for that class of stock
39
Which of the following impacts Retained Earnings:
Total Income since incorporation
Total Cash Dividends Paid
Total Value of Property Dividends Distributed
Excess of Proceeds over cost of T/S sold using Cost Method
Total Income since Incorporation (increase)
Total Cash Dividends Paid (decrease)
Total Value of Property dividends distributed (decrease)
Excess of proceeds over cost of TS (no impact)
40
What are the Financial Statement Titles for the Modified Cash Basis?
Statement of Assets, Liabilities, and Equity - Modified Cash
Statement of Revenues Collected and Expenses Paid - Modified Cash
41
Do Contingent Shares ever factor into BASIC EPS?
Yes, IF they are dilutive and all the conditions for issuance are met.
42
T/S donated by a shareholder:
Does it reduce or increase Shareholder Equity?
No change. It does increase Book Value per share because it reduces the amount of Outstanding Common Stock shares.
43
Property Dividend where Carrying Value is higher than Market Value.
How do you treat this?
It reduces the merch carrying amount (less of it on the books) which reduces Income from Cont Ops
It's technically a loss which hits net income
44
Things that happen which are both Unusual and Infrequent hit which part of Comprehensive Income?
Its Continuing Operations (net income)
45
Property Dividend where FMV is different than BV.
How to Calc Gain/Loss
The difference between:
Fair Market Value (total) at time of declaration and Book Value at time of declaration
46
4% convertible debentures with a principe of $10M due in 20 years at $1000 par and interest payable annually on November 1. Each debenture of $1000 is workth 20 shares of common stock.
How do I calc the Dilutive effect on NAIC?
Get the interest expense to add back into the numerator.
10M * 4% * (1-tax rate) then multiply by how many months in the period. If year ends June 30 and the bonds were there at the beginning of the year, then take half of the interest calculated
47
Under fair value method, how are dividends received treated?
As dividend income on the income statement under non op
48
Under equity method how are dividends received treated?
As a reduction to the investment and netted against the portion of net income
49
Is payment of interest on bonds considered a financing, operating or investing activity?
Interest on bonds payable is an operating activity
50
Is buying stock in another company considered an investing, financing or operating activity?
Investing
51
Is paying dividends to shareholders considered an investing, financing or operating activity?
Financing
52
How are dividends received from last year's arrears treated in the current year?
Included in Net Income from Continuing Operations
53
Foreign Exchange Currency: If the buyer's currency doesn't fluctuate in the given exchange rates, what do you do?
DIVIDE
54
If Company purchases 10,000 shares, and then receives a stock dividend of 2,000 shares what is the Dividend income if a $1.50 per share is declared?
12,000 * 1.50 = $18000
55
Saul Inc. reported the following:
Sales $100,000
Beg. Inventory: $10,000
End. Inventory: $5,000
Saul's gross margin is 25%. What would be the amount of Saul's purchases for the year?
The first step is to calculate cost of goods sold: If gross margin is 25%, then COGS is equal to 75% of $100,000, which is $75,000.
Purchases will equal COGS + Ending inventory – Beginning inventory: $75,000 + $5,000 – $10,000 = $70,000
56
When adjusting notes to the financial statements due to an error in inventory valuation, which accounting principle is primarily being addressed?
Conservative because assets were over or understated
expenses and liabilities should be recognized as soon as possible, but revenues only when they are assured
57
What are the two groups of expenses in non profit and give examples of each
Program which are directly related to the mission activities such as education and research
Support such as fundraising and sga
58
How do I test if Preferred Convertable Stock is Dilutive
Take the effect on NIACS (such as Preferred Dividends) and divide that by the number of shares of CS created by the conversion
59
How do I test if Convertable Bonds are dilutive?
Same way you get the shares added when bonds are converted.
Take the Face Value total (let's say $10M) and divided by Face Value of each bond (let's say $1000). Now you have number of bonds to multiply to get to # of shares added
60
Land was exchanged for 13,000 shares of common stock. The land had a carrying value of $140K and an assessed value of $95K. The stock at that time FMV was $59 per share
How do you record this?
a) Land is debited at the FMV of the total stock transferred (59*13000)
b) C/S is credited (reduced) at Par * total shares transferred
c) APIC is the FMV-Par for total shares transferred
61
How to record Property Dividends Distributed?
a) Retained Earnings for the FV of property dividend
b) Loss or Gain on Inventory
c) Inventory is reduced by BV
62
Find the gross profit for Income Statement if given:
Contract Price
Costs so Far
Estimated Costs to Complete
Billed to Customers
Received from Customers
1) Find expected profit: Sales Contract - Total Costs / Estimated to Complete
2) get the percentage of costs incurred so far using both Costs numbers
3) multiply % by Expected Profit
63
What is the definition of Bond Liability?
What is the Carrying Amount of the Bond Liability?
Its the whole amount the bond issuer has to pay back which includes both interest and principle
aka Future Cash Outflows
Face Value plus unamoritized premiums
OR
Face Value minus unamortized discount
64
Double-Declining Depreciation:
What is Year 3 Depreciation Amount?
$80K Equip Purchase, 10% Salavage Value; 4 Year Useful Life
1) IGNOrE SALVAGE VALUE
2) Using Straight Line, get the Percentage that you will double
80,000 / 4 = 20,000
20,000 / 80,000 = .25 THIS is the rate to double
3) 80,000 x .50 for each year
Year 3 is 10,000
65
The following info pertains to shipments of merch from Home to Branch.
In their consolidated, what amount should be included in Sales?
Home's Cost of Merch $160
Intracompany Billing $200
Sales by Branch $250
Unsold merch at Branch $20
HINT: Which items above are considered Outside Sales
Sales by Branch : $250K
are to outside parties and are not considered for Interco Elimination
66
Which of the following statements is correct regarding a discount bond redeemed at a premium to par under U.S. GAAP?
A) The greater the discount at issuance, the lower the loss upon extinguishment
B) The Bond Payable account will be debited at the premium prie paid to redeem the issue
C) Had a gain been booke when the bond was redeemed, it would have gone to OCI
D) Bond issuance costs not fully amoritized will increase the size of the loss booked.
D is correct... Any Unamortized bond issue costs will reduce the CV when the bond is redeemed. the loss is equal to the reaquisition price - CV
The lower the carrying value, the greater the loss
ALSO... The greater the discount at issuance, the lower the cv; thus the greater the loss on extinguishment
ALSO... The bond payable account will be debited at PAR when bond is redeemed
ALSO... Both gains and losses on bond redemptions are booked on the income statement
67
Sold 300 shares of donated TStock at $40 per share.
Donated Stock had original fv of $32 per share
What's the JE to record?
Cash of Sale Price x # of Shares
TS (credit) for Orig FV x # of Shares
APIC Sales Price - Orig FV
68
What is the Income Tax Expense of 1st Quarter Interim if given:
Pretax Income of $200K
Effective 1st Quarter Tax rate 15%
Prior Year was 30%
Expected Annual Tax Rate for CY is 20%
Interim Period Tax Expense is the Estimated Annual Effective (20%) - Tax Expense recognized in the previous Interim Periods (none in this problem)
Use the 20% Rate
69
70
Why is the. Arguing amount of a parents investment in a sub netted against the subs equity?
to avoid double counting of:
the investment and
the subsidiary’s assets and
liabilities in the consolidated statements
71
When an account is written off under the allowance method, how is the balance sheet and income statement affected?
Under the allowance method, the estimated uncollectible amount is accounted for at the time of the sale. When a specific account is written off, accounts receivable and the allowance account are both decreased by the same amount, so there is no effect on the balance sheet or income statement.
72
Jack Inc is converting their cash basis financial statements to the accrual basis. Jack Inc had the following transactions:
$500 of wages earned by employees but unpaid
$300 in office supplies received but not yet paid for
$200 in cash paid for employee bonuses from the prior year
$1,000 paid in rent for the following year
$500 that has been billed to customers but not yet received
$800 cash received for goods delivered in the prior year
$600 cash received from customers that paid in advance for their order
Which of the following is correct for the conversion to the accrual basis?
Under the cash basis, the $500 of wages and $300 of office supplies received wouldn’t be accounted for yet. Under the accrual basis these would need to be added to the accrued expenses account.
73
What is the journal entry for expensing the incremental costs of obtaining a contract when they are deemed to be immaterial?
When the incremental costs of obtaining a contract are deemed to be immaterial, they are expensed immediately with an entry debiting Expense and crediting Cash or Accounts Payable.
74
Which of these is not a focus in the Management's Discussion and Analysis section in Form 10-K (Item 7, Part II)?
The Management’s Discussion and Analysis section in Form 10-K (Item 7, Part II) focuses on providing narrative context to the financial statements, discussing the company’s financial condition, results of operations, and future financial projections and strategies. Detailed quantitative data about market risk is covered in Item 7A, not in the MD&A section.
75
ABC corp issued $100,000 of 8% serial bonds on Jan 1, Year 1. $10,000 of the bonds will be repaid each year, and interest is paid on Dec 31st of each year. The bonds were issued to yield 10%, and the proceeds were $90,000 based on the fair values on Jan 1, Year 1.
If ABC amortizes the discount using the effective interest method, what would the carrying amount of the bonds be on Jan 1, Year 2?
The carrying value of the bond equals the bond payable amount, minus the unamortized discount.
In year 1, part of the bond payable was paid back ($10,000), and part of the discount was amortized.
We know that the actual interest paid in Year 1 is the $100,000 x 8%, so $8,000. Interest expense on the other hand is the PV amount of $90,000 x the 10% market rate, giving us $9,000. The difference between the $9,000 interest expense and the $8,000 interest paid is amount of the discount amortized in Year 1, which is $1,000. This means the remaining unamortized discount is now $9,000 ($10,000 original discount – the $1,000 amortized).
Also, we know that on Dec 31 of Year 1, $10,000 of the bonds were repaid.
So the carrying value of the bonds on Jan 1, Year 2 is: $100,000 original face value – $10,000 repayment – $9,000 unamortized discount = $81,000
76
What is the JE to establish a Valuation for Tax Asset?
What causes a decrease in the Valuation and what is the JE to adjust?
Income Tax Expense
Valuation Allowance (Deferred Tax Asset)
An increased likelyhood of realizing the Benefit will reduce the Valuation Allowance
Valuation Allowance
Income Tax Benefit
77
Calc the Income Tax Expense and Current Taxes Payable when given:
Pretax CY = $500K
Tax Rate 30%
Temp Difference resulting in future taxable amounts $50K
What is/are the JE to record?
1) Pretax Income x 30% = $150,000 Current Tax Expense
2) Temp Diff * 30% = 15,000 Deferred Tax Liability
3) Total Income Tax Expense = 150+15 = $165,000
Current Tax Expense:
Tax Expense $150K
Tax Payable $150K
Deferred Liability:
Tax Expense $15K
Deferred Tax Liability $15K
78
Calc Deferred Tax Asset/Liab that results from Book vs Tax Basis
A) What are some examples?
1) Allowance for Credit Losses because the loss is not deductible until it actually occurs.
2) LIFO vs FIFO (Book vs Tax Basis)
3) Depreciation - Useful Life of Book vs Tax
79
Under Periodic, what is the relationship between Beg Inventory, Purchases, Ending Inventory, COGS?
What is the effect if Ending Inventory is Understated?
Begin + Purch = Ending + COGS
80
What is the rule to recognize Dividends under the Fair Value Method?
Dividends received hit dividend revenue only up to the extent of the investor's share of cumulative earnings since acquisition.
Excess dividends are called "Return on Capital"
81
Under CECL, for HTM Debt Security...
Amortized Cost is between the Fair Value and Present Value of Future Cash Flows..
Is this recorded as a Gain or Loss?
Record a loss because Amortized is higher than Present Value
82
How are gains treated on the Statement of Cash Flows using the Indirect method?
Gains are considered non-cash so they are subtracted from net income on the statement of cash flows
83
When the Allowance for Uncollectible AR is below the CY Accounts deemed uncollectible, what do you do and how does this factor into the NRV of AR?
Do a JE to increase the value by the difference. This brings the Allowance Account up to cover PY and CY uncollectible.
Uncollectible Accounts Expense
Allowance
NRV = AR - Allowance
84
How is a Gain on Disposal that represents a Strategic Shift in Operations considered and is it reported on the Income Statement?
What about Foreign Currency Translation Gain? What statement does it hit?
Strategic Shift in Operations is considered an Extraordinary item and is no longer a part of GAAP Income Statement
Foreign Currency Translation hits Comprehensive Income Statement, not Income Statement
85
AR Turnover Ratio is calculated by:
86
How does an error in Begin Inventory differ from Ending Inventory?
Begin Inv error fixes itself by the following year.
Ending Inventory does not fix itself. The effect on COGS is opposite the error of Ending Inventory. If Ending Inventory is understated, COGS will be Overstated
87
88
How do I calculate loss on seg disposal if I’m only given Operating Loss, Impairment and Loss on Sale
Op loss + NET (impairment and loss on sale)
Then net of tax
