ACG3103 Intermediate Accounting Ch. 4

Three types of accounting changes

Change in accounting principle, change in accounting estimate, change in reporting entity

Includes net income as as well as other gains and losses that change shareholder's equity but are not included in traditional net income

Comprehensive income

The FASB and IASB propose that the statement of cash flows must be prepared under what method

Direct

T/F - If an item does not meet the criteria of infrequent and unusual, the item should be reported as a separate gain or loss net of tax in the operating section of the income statement

Falso- if the item is not extraordinary, it is included in the continuing ops section of the income statement, However, it is not disclosed net of tax

The Financial Statement Presentation project proposed these new categories in the income statement and the balance sheet

Financing, Investing, and Operating

Revaluation surplus is reported as other comprehensive income under

IFRS

When are restructuring cost recognized on the income statement

In the period the exit or disposal obligation is incurred

The Financial Statement Presentation project proposes changes to the

Income and Comprehensive Changes, Statement of Financial Position, & Statement of Cash Flows

Method for preparing the statement of cash flows beginning with net income and working backward to calculate net cash flow from operating activities

Indirect method

The calculation of comprehensive income begins with

Net Income

Calculate basic earnings per share

Net income divided by end of year common stock

Where are extraordinary items presented on the financial statements

On the income statement after discontinued operations.

IFRS, dividends received can be classified as

Operating or investing activity

What of the following is disclosed on the comprehensive income statement?

Other Comprehensive income

Although GAAP uses the term net income on the income statement, IFRS uses the terms

Profit and Loss

SOX requires that if pro forma earnings are included in a report or any public disclosure, the company must

Provide a reconciliation with the earnings according to GAAP

Cash collected for the period

Sales on account + cash sales + the change in cash receivables = cash collected for the period.

When a company changes accounting principles, the FS are adjusted by adjusting

The beginning balance of RE of the earliest period presented.

To qualify as an operation for purposes of determining discontinued operations, what must occur

The operation must be clearly distinguished operationally and for financial accounting purposes, and the operation must be a component of the entity

T or F, Extraordinary Gain or Loss requires separate disclosures after income from continuing operations.

True

T or F- Assets and Liabilities held for sale in a discontinued operation should be classified as current or noncurrent based on when the company expects to complete the sale

True

T/F- Intraperiod tax allocation allocates income tax expense or benefit with each major component of income that causes it

True

T/F-interest expense, gain from sale of land, & interest income may be classified as nonoperating income for a tv co.

True

T or F, Net Income is a portion of comprehensive income

True- Net Income includes items that meet certain criteria to be recognized on the income statement. Comprehensive income includes items that do not meet certain revenue recognition.

T/F- Consistent with the Financial Statement Presentation project proposal, the concept "cash equivalents" will be eliminated

True- the only surviving category will be cash

T/F- consistent with efforts by FASB and IASB, in the future, extraordinary items likely will not be reported by US companies

True= IFRS does not permit them

What characteristics would qualify a component that has been sold or is held for sale as a discounted operation

a business that meets the criteria to be classified as held for sale on acquisition; and separate major line of business or major geographical area of operation

items that may be listed under the proposed multi-category transactions classification may arise from the

acquisition and sale of other companies

General and administrative expenses, R&D expense, COGS

all included in calculating operating income

If Bike Co. manufactures bikes and sells a building at a loss, how will that loss be disclosed in the income statement

as a loss in calculating income from continuing ops

Other gains and losses that do not qualify for extraordinary treatment are disclosed

as income from continuing ops on the income statement

Operating, investing, and financing, are new categories in income/comprehensive income statement and the

balance sheet

Two types of earnings per share reported

basic and diluted

The formula for calculating the impairment of a discontinued operation held for sale is the

book value of the component minus the fair value of the component less costs to sell

The proposed major new category that would be shown in each financial statement is

business activities

Place the proposed categories for the statement of cash flows in the correct order

business, financing, multi-cat, income taxes, disc. ops

Taxes relating to OCI items

can be shown separately for each item or aggregated and reported as one line item

The indirect method of preparing the operating section of the statement of cash flows begins with net income and adjusts for items that do not affect

cash

The two types of adjustments to net income for the indirect method are adjustments for

changes in operating assets and liabilities during the period that affected cash and were not in the net income; and components of net income that do not affect cash

Companies are required to reconcile the differences between ? income and ? income

comprehensive and net

A change in accounting estimate affects info in which periods

current and future

A business that meets the criteria to be classified as a held for sale on acquisition and a separate major line of business or major geographical area of operations are characteristics that would qualify a component that has been sold or is held for sale as a

discontinued operation

Two items that are treated differently on the statement of cash flow for GAAP & IFRS are

dividends and interest

GAAP requires that a statement of cash flows must be presented for

each period for which results of ops are provided

Comprehensive income is defined as the total change in WHAT for a reporting period other than transaction with owners

equity

A revaluation surplus occurs is equipment's

fair value exceeds its book value

Consistent with IFRS, dividends paid can be classified as

financing or operating activity

Effects if a strike or loss of a major customer do NOT qualify

for extraordinary treatment on an income statement prepared in accordance with GAAP

An Income Statement prepared in accordance with IFRS classifies expenses by

function and nature

What is required to correct a material error in the financial statements

include a disclosure note explaining the impact of the error on income, adjust the beginning balance in retained earning for the earliest period presented, restate the financial statement of all years presented

Which methods are acceptable methods for reporting comprehensive income for GAAP

included in the statement of changes in owner's equity, included as an extension to the income statement, reported as a separate statement of comprehensive income.

income tax expense is reported in which section of the income statement

income from continuing ops

which items require separate allocation of income tax expense or benefit

income from continuing ops, discon. items, extra. items

Earnings per share is disclosed at the bottom of the

income statement

The statement used to predict future profitability and a company's future cash-generating ability is the

income statement

list the Change statements

income statement, statement of owner's equity, statement of cash flows.

With IFRS, interest received can be classified as

investing or operating activity

Under the proposed Financial Statement Presentation project, cash flows that would be classified as investing activities include

investments in bonds and stocks

The proposed ASU on discontinued ops defines a disc. op as a component that either

is classified as held for sale or has been sold

The following are cash inflows from financing activities

issuing stock to investors for cash & borrowing from a bank

Income statement classification and income shifting are

methods for manipulating income

In calculating the basic earnings per share, what is divided by the weighted average common shares outstanding

net income less any preferred stock dividends

In order to provide more complete info, GAAP allows that any significant noncash investing and financing activities may be reported

on the face of the statement of cash flows and in the notes to financial statements

Consistent with IFRS, dividends received can be classified as

operating activity or investing activity

Consistent with IFRS, dividends received can be classified as

operating or investing

What is used to calculate diluted earnings per share

options that can be converted to common stock & convertible securities

Impairment of goodwill and impairment of long-lived assets would be included where

other gains and losses in calculating income from continuing ops

A change in depreciation method is accounted for by

prospectively applying the new method

Cash outflows from investing activities

purchase of land, purchase of available-for-sale securities

If a component of the business qualifies for discontinued ops treatment then all revenues, expenses, and losses must be

removed from continuing ops & the tax expense effect is removed also

Cash outflows from financing

repay borrowing from bank, pay dividends

The accounting treatment required for a material error in financial statements that have been issued is to

restate the financial statements of the previous periods affected

When FASB mandates a change in accounting principle, the board may allow companies to account for the change ---------, or to report the change

retrospectively

A characteristic of income smoothing is that income has a

smooth, upward, slope

What are the required disclosures in a note to the financial statements for a change in deprecation method

the reason for the change, the effect on earnings per share, the effect on net income

List the info that must be included in the notes to the financial statements regarding disc. ops

the reason for the discontinuance, the major classes of assets and liabilities of the component, the identity of the component

T/F a change in estimate for uncollectible accounts is a routine change that does not require a disclosure note if the amount is not material

true