Technical Accounting & Reporting Flashcards
The rules for costs incurred to create a computer sw product to be sold are:
expense until tech feasibility then
capitalize costs up to the point the product is released for sale
How do you value a crypto asset at each reporting period?
Fair value at each period with changes from remeasurement reflected in current period net income.
What is the pneumonic for the acquisition of a company?
Common Stock
APIC
Retained Earnings
Investment in Sub
Non Controlling Interest
Balance sheet at fair value
Intangibles at fair value
Goodwill (or gain)
When would a company with over 50% ownership of a subsidiary not consolidate the entity?
When there is significant doubt about the parents ability to control the subsidiary.
if a company has a refund or exchange obligation with a customer, when can it recognize revenue?
It should recognize a liability for estimated refunds. If it cannot estimate then the company must wait until the refund period expires before recognizing revenue
For point in time project revenue recognition, when would be a case to book project cost early?
If there are expected losses they are recognized immediately in their entirety.
For compensatory stock options what is the journal on the grant date?
DR Compensation Expense, CR APIC - Stock Options
Based on fair value and allocated over the service period
When compensatory stock options are exercised, what is the journal?
DR APIC - Stock Options (reversing the original entry that had DR Compensation Expense)
DR Cash - Amount paid by the person exercising the options
CR Common Stock - at par for the # of shares exercised
CR APIC - Squeeze to make the entries balance
What is the formula for compensation cost of restricted shares?
Market price of share on date of grant * number of restricted shares awarded
Compensation cost will be straight lined over the service period
What is a Profits Interest Award and how is it booked?
Issued by partnerships that create a special class of equity. They can be booked as equity or a liability based on their characteristics. They are a DR to compensation expense based on the vesting schedule.
What value are stock options valued at and expensed?
Based on fair value at the grant date and expensed over the service period straight lined. Changes to the value do not change the compensation expense after the grant date.
If a stock option is non-compensatory what are the rules and when do you book expense?
Wait until options are exercised.
DR Cash, CR common stock at par, APIC in excess of par
All employees can participate equally, reasonable period of time, discount is reasonable
What is the journal if a stock option expires unused?
DR APIC - Stock Options
CR APIC - Stock Options Expired
What is a contingent consideration in reference to an acquisition?
An obligation of the parent to transfer additional assets or equity to the former shareholders of the subsidiary if certain conditions are met.
How are direct costs and stock issuance costs treated in relation to an acquisition?
Direct costs are expensed and stock issuance costs are treated as a reduction to APIC.
What is the formula for the change in Non Controlling Interest on the balance sheet of the parent?
Beginning NCI +
NCI share of sub NI -
NCI share of sub dividends =
Ending NCI
When a company steps up its investment in a subsidiary from equity method to acquisition method what does it need to do with its original investment?
The previous investment must be adjusted at fair value. This will be recognized as a gain or loss in the period of the additional acquisition.
What is the criteria for determining a functional or dysfunctional currency?
- Are they using the currency of that country?
- Are they doing their own banking?
- Are they not hyperinflationary?
If the answer is no to any of these questions they will use the remeasurement method instead of the translation method.
What is the plug when you use the translation method vs. the remeasurement method to translate a subsidiary financial?
Translation = CTA in OCI
Remeasurement = foreign exchange gain/loss in Income Statement
What are the criteria for a Fair Value hedge?
Formal documentation
Expected to be highly effective
Assessed every 3 months at least
Hedges an item that presents exposure to NI
What is a derivative?
An instrument that derives its value from the value of another instrument
What are the characteristics of a derivative?
it has underlyings or notional amounts or payment provisions
it requires no initial net investment
Its terms require or permit a net settlement
What is a put option?
PUT DOWN
Lock in the sale price of a stock. If the stock decreases in value the holder will have locked in the higher price.
What are some characteristics on a futures contract?
FUTURES MARKET
Made through a clearing house
Standardized notional amounts
Standardized settlement dates
