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FAR:Standards And Conceptual Framework > Standards and Framework > Flashcards

Standards and Framework Flashcards

1
Q

Single source of authoritative nongovernmental US GAAP

A

The FASB Standards Codification (ASC)

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2
Q

What is the PCC

A

The Private Company Council created by the Financial Accounting Foundation (FAF). The PCC improves standard setting for privately held companies in the US.

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3
Q

What are the fundamental qualitative characteristics of useful financial information?

A

Relevance and faithful representation

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4
Q

Name the three elements of relevance.

A

Predictive value
Confirming value
Materiality

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5
Q

Name the three elements of faithful representation.

A

Neutrality
Completeness
Freedom from error

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6
Q

Name the enhancing qualitative characteristics of financial information.

A

Comparability
Verifiability
Timeliness
Understandability

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7
Q

Name the 5 elements of present value measurement per SFAC No 7

A

Estimate of future cash flow
Expectations abt timing, Variations of future cf
Time value of money(the risk free rate of interest)
The price for bearing uncertainty
Other factors(liquidity issues and market imperfections)

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8
Q

Name the pervasive constraint on the info provided in financial reporting.

A

The benefits of reporting financial info must be greater than the costs of obtaining and presenting the info.

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9
Q

Describe the expected cf approach for pv computatiins

A

Considers a range of possible cfs and assigns a subjective probability to each cf in the range to determine the weighted average or expected future cf.

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10
Q

How does a multi-step income statement differ from a single-step IS?

A

A MS IS reports operating revenues and expenses separately from nonoperating revenues and other gains and losses.
A SS IS’s presentation of income from continuing ops, total expenses are subtracted from total revenues without separation between operating and nonoperating revenues and expenses.

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11
Q

What is meant by a classified BS?

A

A classified bs distinguishes current and noncurrent assets and liabilities.

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12
Q

List the steps associated with the five-step approach to revenue recognition .

A
  1. Identify the contract with the customer
  2. Identify the separate performance obligations in the contract
  3. Determine transaction price
  4. Allocate the transaction price to the separate performing obligations
  5. Recognize revenue when or as the entity satisfies each performance obligation.
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13
Q

What criteria must be met to recognize revenue on a contract?

A
  1. All parties have approved contract and are committed to performing their obligations 2. The rights of each party are identified. 3. Payment terms can be identified. 4. Future cash flows are expected to change as a result of the contract. 5. It is probable the entity will substantially all of the consideration.
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14
Q

What criteria must be met for a performance obligation to be considered distinct?

A

The promise to transfer the good/service is separately identifiable from other goods or services in the contract.

The customer can benefit from the good/service independently or when combined with the customer’s own available resources.

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15
Q

Define the transaction price when recognizing revenue.

A

The transaction price is the amount of consideration an entity expects to receive in exchange for transferring good/services to a customer.

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16
Q

What factors should be accounted for when determining the transaction price?

A

Variable consideration
Significant financing
Noncash considerations
Considerations payable to the customer

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17
Q

Describe how allocation works when a contract contains more than one performance obligation.

A

The overall contract transaction price should be allocated among each obligation based in the stand-alone price expected for satisfying each unique obligation (along with applying any discounts and/or variable consideration).

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18
Q

Describe how revenue recognition differs when performance is satisfied over time versus at a point in time.

A

Revenue is recognized based in measuring progress toward completion using either output or input methods when the performance obligation is satisfied over time.

In order to recognize revenue when performance is satisfied at a point in time, the customer must obtain control of the asset.

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19
Q

Distinguish between the treatment of costs incurred in obtaining a contract as assets or as expenses.

A

If an entity expects to recover these costs through the performance of the contract, the entity will treat them as assets. If the costs are incurred regardless of whether the contract is obtained, they are treated as expenses.

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20
Q

How do control and revenue recognition differ when an entity acts as a principal vs an agent?

A

A principal has control over the good/service prior to transfer, and revenue equal to expected gross consideration will be recognized.

An agent does not have control, and revenue equal to the agent’s fee/commission will be recognized.

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21
Q

Describe the accounting treatment for forwards and call options related to repurchase agreements.

A

Forward or call option

Repurchase price < original price(lease)
Repurchase price >= original selling price (financing arrangement)

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22
Q

Describe the accounting trtmnt for put options related to repurchase agreements. Repurchase price < original selling price

A

Customer has a significant economic incentive to exercise the right (lease)

Customer does not have significant economic incentive (sale with a right of return)

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23
Q

Describe the accounting trtmnt for put options related to repurchase agreements. Repurchase price >= original selling price

A

Repurchase price >Expected market value of the asset (financing arrangement)

Repurchase price <=Expected market value of the asset and customer does not have a significant economic incentive to exercise the right (sale with a right of return)

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24
Q

Foreign currency trans loss 30k
Unreal. gain on afs debt sec 10k
Unreal. loss on afs eq sec 10k
Amort actuarial pension loss 15k
Actual return pension plan assets 65k
Previous AOCI 340k
New AOCI?

A

335k
Beg bal will be decreased by the 30k for currency trans loss and increased by the unreal gain on the afs debt security of 10k and the amort of the actuarial loss on pen plan assets of 15k. The actual return on pen plan assets is not specifically a part of AOCI.

25
Q

Unadj ye TB at end of yr 2
Change from FIFO to weighted avg method of inv valuation DR. 10k
Prior svc cost- pensions DR. 35k
Gain on sale of afs securities CR. 27.5k
Loss from infrequent item DR 18k
Gain on for currenct translations CR 11.5k
What is AOCI for yr 2?

A

$23,500
1. Prior svc costs are incl in OCI until recognized in a later period as a component of pension expense.
2. A change in acct prin is shown as an adj to re at the beginning of the yr. It is not an item of OCI
3. Gains from sale of afs securities ate part of NI(inc from cont ops) not a component of OCI
4. A loss from an infrequent item is a part of NI (inc from cont ops)

26
Q

All of the following are accurate required disclosures when reporting AOCI and OVI EXCEPT:
1. Reclassification adjustments and their effect on both NI AND OVI are reported in the footnotes
2. Report total AOCI on the BS as an item of equity
3. For each component of OCI, report the changes in the accumulated balances
4. The tax impact of each component incl in the current yr’s OCI must be reported

A

A. All reclassification adjustments incl the effect on reported NI and OCI must be presented in the statement in which the components of NI and the other components of OCI are presented (not the footnotes).

27
Q

A large tax accrual adjustment related to yr 2 that impacts the BS and IS is identified during yr 3

Change in accounting principle
Change in accounting estimate
Error correction
Change in entity

Beginning RE only
Beginning RE and current earnings
Current earnings only
None

A

Change in estimate
None

28
Q

A new FASB standard is implemented in Y3 which requires Jones to change how it accounts for probable future charges.

Change in Entity
Change in Principle
Change in Estimate
Error Correction

Beginning RE only
Current earnings only
Beginning RE and current earnings only
None

A

Change in principle
Beginning RE and current earnings

29
Q

The company calculates depreciation of $250k in y2 but realizes after the books are closed that it should have been $225k

Error correction
Beginning re only
Beginning re and cur earnings
Current earnings only
None

A

Error corr
Cur earnings only

30
Q

What do liquidity ratios do?

A

Gauge a company’s ability to fulfill ST obligations (current liabilities) when they come due.

31
Q

What is the current ratio (working capital ratio)?

A

Current assets/current liabilities

32
Q

What us the Current ratio (that is not division)?

A

Current assets - current liabilities

33
Q

What is the quick ratio (acid-test)?

A

Cash and cash equivalents + marketable securities + net A/R/Total current liabilities

34
Q

What do solvency ratios do?

A

Measure a company’s ability to meet LT financial obligations incl the company’s use of financial leverage (debt financing)

35
Q

What is the Debt to total assets ratio?

A

Total liabilities/total assets

36
Q

What is the debt to equity ratio?

A

Total liabilities/total equity

37
Q

What do activity ratios do?

A

Gauge how efficiently a company uses its resources, translating business activities into sales (and cash)

38
Q

What is the Receivables turnover?

A

Net credit sales/avg AR, net. This is used by managers to evaluate how efficiently AR are collected and how well working capital is managed by the company.

39
Q

How to calculate net AR?

A

Gross AR - Allowance for doubtful accounts

40
Q

How to calculate Average collection period aka days sales outstanding?

A

365/avg receivable turnover

41
Q

How to calculate inventory turnover?

A

COGS/avg inventory. This measures how efficient a company is at managing their inventory

42
Q

How to calculate Days in inventory?

A

365/inventory turnover

43
Q

How to measure total asset turnover?

A

Net sales/avg total assets

44
Q

What do market ratios do?

A

Evaluate the company from an investor’s perspective, applicable to a company that is publicly traded and has a market value for its stock

45
Q

What is the Price-earnings ratio and what does a lower PE ratio indicate?

A

PE = Stock price per share/Basic EPS. A lower ratio is favorable (greater than zero) indicating the company needs fewer years to earn the amt investors paid per share- assuming the PE ratio and EPS remain constant

46
Q

What is Book value per share?

A

Common shareholders equity/Number of shares of common stock outstanding. Remember the denominator excludes treasury stock.

47
Q

How to calculate common shareholders’ equity?

A

Total SH equity - Preferred stock (P/S), par value - P/S liquidation premium - P/S dividends, incl all preferred dividends in arrears / Common SH equity. *Denominator excludes treasury stock

48
Q

Items of income or loss that are unusual OR infrequent (or both) should be reported SEPARATELY as part of?

A

Income from continuing operations. The nature of the item and the financial statement effects should be disclosed on the face of the IS or in the footnotes.

49
Q

Which of the following should be included in G&A expenses?
Interest advertising.

A

Neither. Interest exp is classified as a separate line item and adv is classified as a selling exp.

50
Q

What is the line item displayed before considering income tax effects on the IS?

A

Income(loss) from operations

51
Q

What category is freight-in in?
Freight-out?

A

“In” COGS
“Out” selling expense

52
Q

Mkt value is the ________ of an inventory item’s replacement cost, mkt ceiling and mkt floor

A

Median or middle value

53
Q

Replacement cost is?

A

The cost to purchase the item of inventory as of the valuation date

54
Q

Market ceiling is an item’s

A

Net selling price less the costs to complete and dispose (the NRV)

55
Q

Mkt floor is the?

A

Less a normal prof marg

56
Q

Inder US GAAP, where is the write down of inventory reflected?

A

COGS unless the amt is material in which case it is identified separately in the IS

57
Q

The LCM or Lower of cost and NRV rules do not apply when:

A

The subsequent sales price of an end product is not affected by its mkt value or
The company has a firm sales price contract

58
Q

A bldg is being marketed for sale to take place in 4 months. How should it be valued?

A

Lower of BV or NRV(FV-costs to sell.”).

FAR:Standards And Conceptual Framework (1 decks)

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