CPA FAR 4.3

Sum of Years Digits Depreciation

(cost - salvage)* remaining life/sum of years digits

Quantitative Thresholds for Reportable Segments

- 10% Size Test - revenue, profits and losses, assets - 75% Reporting Sufficiency Test if total external revenue reported by operating segments is less than 75% of entity's external revenue, we must add operating segments to reportable segments classification

R&D Costs include:

- depreciation of assets used in R&D exclude: - engineering - follow up - patent costs - routine efforts / testing - marketing research

Intangible assets amortization

Are amortized over the lesser of remaining useful economic life or legal life

Held to maturity impairment

loss is recorded when amortized cost exceeds present value of principle and interest expected to be collected

Most advantageous market

market with the best price for the asset or liability after considering transaction costs

Fair Value Option F4

may choose to record assets and liabilities at fair value excludes: investments in subsidiaries, pension benefit plans, leases, deposit liabilities

Accounts Receivable Turnover Ratio

net credit sales/average net accounts receivable

Comprehensive Income

net income + other comprehensive income Excludes owner transactions!

Return on Assets (ROA)

net income/average total assets

Asset Turnover Ratio

net sales/average total assets

Nonmonetary Transactions - Lacking Commercial Substance (Gains)

no cash received - no gain less than 25% paid in cash - no gain recognized less than 25% received in cash - book some gain more than 25% paid or received in cash - both sides book gain / loss

Restoration of impairment

not permitted, unless asset it held for disposal (never possible for goodwill)

what depreciation method disregards salvage value

only double declining depreciation disregards salvage value

debt securities reported at fair value

only trading securities and available for sale

OCI into AOCI

other comprehensive income becomes accumulated other comprehensive income and is presented on the balance sheet --> must be its own line item (can't be on both - reconcile!)

Relevance of financial information

predictive value confirmatory value materiality

Total Debt Ratio

total liabilities/total assets

Debt to Equity Ratio

total liabilities/total equity

Goodwill calculation

FV of subsidiary - FV of subsidiary assets

Non controllable interest (NCI) calculation

FV of subsidiary - acquisition cost

Equity Securities

Fair Value Through Net Income (FVTNI) Method (TS rules) CF from operations reported at FV all G/L on Income statement

Discontinued Operations consist of

Impairment loss G/L from actual operations G/L on disposal (disposals must have major economic shift in financials)

Filing Deadline for Form 10-K

Large accel= 60 (>700m equity) accel= 45. (>75m equity) everyone else= 90 (<75m equity)

Filing Deadline for Form 10-Q

Large accelerated: 40 days Accelerated: 40 days All others: 45 days

Hierarchy of valuation inputs

Level 1: identical assets / liabilities in active markets Level 2: similar assets / liab. in active markets OR identical assets / liab. in inactive markets Level 3: unobservable inputs, mgmt assumptions

consignment

asking a third party to sell your products inventory stays on books of consignor revenue is recognized when consignee sells the goods

Lack Commercial Substance

cash flows and economic positions do not change

what is a change in estimate

changes in lives of fixed assets write downs of obsolete inventory adjustment of year end accruals

Enhancing Qualitative Characteristics of financial information

comparability verifiability timeliness understandability

faithful presentation of financial information

complete neutral free from error

Inventory Turnover Ratio

cost of goods sold/average inventory

full set of financial statements

-Statement of Financial Position (the balance sheet) -Statement of Earnings (the income statement) -Statement of Comprehensive Income -Statement of Cash Flows -Statement of Changes in Owners' Equity

Impairment test; assets with indefinite lives

1 step difference between BV and FV (DCF) is loss

Completion over time method

1. Anticipated G.P 2. Costs incurred to date / Total estimated expenses --> Take percentage * G.P. take into account how much has been recorded last year and subtract that G.P.

Lower of cost or NRV

1. Find NRV 2. Take lower of NRV or cost

Lower of Cost or Market

1. Find Replacement cost 2. Find Market Ceiling (NRV) 3. Find Market Floor (NRV-Profit) Find middle of those 3 and compare to cost - take the lower of the 2

Impairment test; assets with finite lives

2 steps Recoverability test: if BV exceeds FV (undiscounted CF), loss exists difference between BV and FV (DCF) is the loss

Audit Requirements

3 years of income statement, changes in owner equity, cash flows 2 years of balance sheets

Trading Securities

CF from operations reported at FV all G/L on Income statement

Internally created intangible assets (marketing / sales expenses)

Cannot be capitalized. must be expensed as incurred

Converting Cash Basis Revenue to Accrual Basis Revenue

Cash Basis Revenue + Ending A/R - Beginning A/R - Ending unearned rev. + Beginning unearned rev. Accrual Basis Revenue

Dividend payout ratio

Cash Dividends/Net Income

Operating Cash Flow Ratio

Cash Flows from Operating Activities / Current Liabilities

Converting Cash Paid for Operating Expenses to Accrual Basis Operating Expenses

Cash Paid for operating exp. + Ending Accrued liabilities - Beginning Accrued Liabilities - Ending Prepaid Expenses + Beginning Prepaid Expenses = Accrual Basis Operating Expenses

Available for sale debt securities

Cash flow from investments reported at FV realized G/L on income statement unrealized G/L in equity - OCI

Held to maturity debt securities

Cash flow from investments reported at amortized cost (not FV, distracter!) no unrealized G/L

Converting Cash Paid for Purchases to COGS

Cash paid for purchases + Ending AP - Beginning AP - Ending Inventory + Beginning Inventory = COGS

Dividend Received - Fair Value Method

Considered income, does not affect investment account

Consolidation - Equity

Consists of parent Equity + NCI (if existing)

Accounts Payable Turnover Ratio

Cost of Goods Sold / Average Accounts Payable

Right to repurchase

Credit financial liability (not revenue) for as long as repurchase option exists Must increase financial liability and interest expense during the year (difference between sell price and repurchase price) if option lapses, get rid of liability, credit revenue

Dividend Received - Equity Method

Decreases investment Account, does not affect investment income account or dividend revenue

Financial Instrument Disclosure

Disclose both BV and FV Disclose Concentration and Credit Risk in notes to Financial Statements Disclosure of market risk is not required

times interest earned ratio

EBIT/Interest expense

Return on Sales

EBIT/Sales

Days Payable Outstanding Ratio

Ending Accounts Payable / (COGS / 365)

Days in Inventory Ratio

Ending Inventory / (COGS/365)

Days Sales in Accounts Receivable Ratio

Ending accounts receivable (net) / (Sales (net) / 365)

Non-financial assets, highest and best use

FV is determined based on highest and best use highest and best use in N/A for financial assets and liabilities

Return on Equity (ROE)

Net Income/Average Total Equity

DuPont Return on Assets

Net Profit Margin x Total Asset Turnover

subsequent events

Occurs after the fiscal year-end but before the statements are issued.

Ordinary Repairs - Depreciation

Ordinary repairs and maintenance are not depreciated, but expensed at time Including painting halls, replacing windows etc.

other comprehensive income consists of:

PUFI -pension adjustments: G/L from benefit pension plans -unrealized G/L from available for sale debt securities and hedges -foreign currency items -insturment specific credit risk

Principal vs. Agent

Principal: revenue = sales price paid by customer, COGS = cost of item to company Agent: records as revenue only the commission it receives on the transaction (which is rev - exp), marks COGS as 0

changes in accounting estimates; affect F/S

Prospective

capitalization of R&D costs

R&D costs are always expensed as incurred, unless: 1. the assets have alternative future uses (definitely, not likely) 2. or R&D was conducted on behalf of others 3. technological feasibility has been achieved

Liquidating Dividends

Reduce amount of investment account for both Fair Value and Equity Method

Qualitative Characteristics of useful financial information

Relevance Faithful Presentation

Form 8-K

The "special events report" filed with the SEC whenever certain significant corporate events such as changes in control, legal proceedings, and changes of auditor occur.

Equity Multiplier

Total Assets/Total Equity

FIFO perpetual vs. periodic

Will always result in the same ending inventory and COGS all other inventory methods result in different ending inventories when comparing perpetual & periodic

capitalization of start up costs

all start up costs are to be expensed as incurred

Compute COGS

beginning inventory + purchases - ending inventory

Cash Conversion Cycle

days sales in AR + days in inventory - days of payables outstanding

declining balance depreciation method

declining rate (1.5 or 2) over useful life --> gives % multiply % by yearly NBV to get annual AD

remaining footnotes include

discontinued operations., related party transactions, material information disclose concentration risk

Bill-and-Hold Arrangements

entity bills a customer for a product but the entity retains physical possession of the product until a point in time in the future. buyer is not yet ready to take delivery but does take title and accepts billing. product must be ready for delivery and seller cannot use product

Form 20-F and 40-F

filed annually by foreign private issuers Form 40-F is filed by specific Canadian companies registered with SEC Form 20-F is filed by other non US registrants

Form 6-K

filed semi-annually by foreign private issuers; similar to 10-Q

commercial substance

future cash flows and economic positions change as a result of the transaction gains and losses are always recorded

Recognized Subsequent Events

if condition existed at BS date and additional information is given after BS date, make a journal entry + disclose

Net income consists of:

income from continuing operations discontinued operations

perpetual inventory system

inventory count is updated with each purchase / sale of inventory --> actual COGS is determined as sale occurs when this count is compared to physical count, inventory shortages can be identified

successful legal defense of intangible assets

is capitalized if it was not successful, we expense it

evaluate subsequent events through

issuance date (public companies) date they are available to be issued (private companies)

Nonrecognized Subsequent Events

provide information about conditions that occurred after the balance sheet date and did not exist on the balance sheet date -> disclose

Summary of Significant Accounting Policies

provides the entity's portfolio of GAAP methods used in preparing its financial statements (depreciation method, inventory pricing) does not include details, balances

periodic inventory system

quantity of inventory is only determined by physical count, at least annually costs of inventory sold and and inventory shortages cannot be easily distinguished

Reconciliation: Sales sub ledger to general ledger

reconciliation process should be done monthly subledger has all details, general ledger has one big number, the details must add up to general ledger #

Correction of Errors

record as an adjustment to beginning retained earnings if period is not presented otherwise just correct affected year

Discontinued Operations are reported:

reported separately from continuing operations in the income statement, net of tax

changes in accounting entity; affect F/S

retrospective

changes in accounting principle; affect F/S

retrospective net of tax adjustment in year change was made

Fair Value

the amount that a business could sell an asset for, or the amount that a business could pay to settle a liability does not include transaction cost, but may include transportation

Form 10-K

the annual report that publicly traded companies must file with the SEC

Principle market

the market with the greatest volume or level of activity for the asset or liability

Form 10Q

the quarterly report that publicly traded companies must file with the SEC - unaudited