FAR 2019 Notes

operating liabilities (cash flow)

-- all accruals except interest-bearing liabilities. -- liabilities have two buckets: operating and financing activity -- interest bearing liabilities, buzz words: notes, debt, bond, debenture, line credit, negotiated, financing

bond issuance costs

-- all costs associated with bonds should be amortized over the "outstanding" term of bonds: i.e. promotion costs, engraving and printing, and underwriters' commissions.

deferred tax liabilities

-- all deferred tax liabilities are classified as non-current liability.

expenditure control

-- all expenditures from almost every operating fund are debited to an account called "expenditure control" -- examples of operating: 1. purchase of equipment.

Refundable bonds

-- allow an existing issue to be retired and replaced with a new issue at a lower interest rate.

trademarks

-- amount paid for a trademark is amortized over its economic life. (i.e. the buyer's cost is used as the basis, not the seller's basis) -- economic life can come from a consultant as estimated remaining life. -- if a trademark is expected to be renewed indefinitely, there will be no amortization expense on the books. Amortization is only recorded for intangible assets with a definite life.

insufficient level of equity at risk

-- an entity has insufficient equity investment at risk if the entity's equity investment at risk is less than the equity investment at risk of similar non-VIE entities. An entity has sufficient equity investment at risk when the equity's equity investment at risk is at least as much as the equity investment of other non-VIE entities that hold similar assets of similar quality.

an exchange transaction

-- an exchange transaction is when an item is traded with another item. -- exchange transaction increases net assets without donor restrictions. -- example: 1. market drugs for research results.

contingent consideration

-- an obligation of the parent company to transfer additional assets or equity interests to the former shareholders of the subsidiary if specified conditions are met.

annuity dues (annuities in advance)

-- annuity due payments occur at the beginning of each period.

If cash is exchanged for cash or cash equivalent, does it need to be reported on statement of cashflows?

-- answer: No. -- EX: if cash is used to purchase US treasury bill that has 3 month maturity, since investments that have an original maturity of 3 months or less when purchased is treated as a cash equivalent, the T bill is treated as cash, therefore the exchange only changes the form of cash held, and does not change the cash position thus the purchase is not reported on the statement of cash flows.

basic criterion used to determine the reporting entity for a government unit?

-- answer: financial accountability. An accountability perspective provides the basis for defining the financial reporting entity.

should gain or loss be recognized from a treasury stock transaction?

-- answer: net income or retained earnings will never be increased through treasury stock transactions. If a gain is incorrectly recognized from issuance of treasury stock, then net income and retained earnings would be overstated. -- corporations are not permitted to report income statement gains and losses from treasury stock transactions. Instead, treasury stock "gains and losses" are reported as direct adjustments to stockholders' equity. -- Gains are recorded by crediting APIC - Treasury stock, while losses are recorded by first reducing any existing APIC - Treasury Stock to $0, and then debiting any additional loss to retained earnings.

term bonds

-- are bonds that have a single fixed maturity date.

changes in gain or loss on effective portion of cash flow hedge are deferred and reported in

-- are deferred and reported in other comprehensive income. -- usually effective cash flow hedge results in a gain.

changes in ineffective portion of cashflow hedge are reported in

-- are reported in current income.

debentures

-- are unsecured corporate bonds

changes in value of cash flow hedges that effective are reported in

-- as unrealized gain/loss in other comprehensive income until future cash flows with the hedge item are realized.

under GAAP what approach is used to determine income tax expense? what approach?

-- asset and liability approach (sometimes referred to as the balance sheet approach). The asset and liability approach is used to squeeze out the amount of income tax expense after the amount of deferred tax assets and liabilities have been determined.

deferred inflow of resources

-- assets (such as property taxes receivable) associated with unavailable revenue (such as property taxes collected more than 60 days after year end) should be recorded by crediting a deferred inflow of resources. -- in the case of property taxes, receivables are recognized in the period in which the taxes are levied. When property taxes are either recognized as receivable in advance or collected in advance of the year in which they are levied, deferred inflows of resources are recorded. example JEs: 1. Dr. property taxes receivable; Cr. deferred inflow of resources 2. Dr. cash; Cr. deferred inflow of resources

assets purchased for research and development

-- assets purchased for research and development that have no alternate use should be fully expensed and not depreciated. -- if it has alternate use, then it will depreciate using sum of years for years used for R&D and alternate use.

assigned fund (govt)

-- assigned fund balances are constrained by the government's intent to be used for a specific purposes but are neither restricted nor committed.

accrued liability

-- associated with a liability that requires the periodic payment of interest. (not associated with AP)

loan payable

-- associated with liability that is secured by collateral. (not associated with AP)

consolidated equity

-- at date of acquisition of sub of 50% or more of sub, the consolidated equity will be equal to the parent company's equity plus the fair value of any non controlling interest. The subsidiary company's equity accounts are eliminated. -- NCI BOY = FV of sub times %of NCI. -- FV of sub = acquisition cost / %ownership in sub -- NCI EOY = NCI BOY + NCI share of net income - NCI share of dividends paid.

when is warranty cost recognized?

-- at the date of sale of good that has warranty, because they are probable and estimable as loss contingency. Dr. warranty expense and Cr. warranty liability. -- Under accrual accounting, the entire warranty liability must be accrued in the year of the sale to match the warranty cost to the related revenue. -- warranty expense for the year = percentage of usually net sales. -- End bal. liability for warranty = beg. bal liability - warranty costs incurred.

bond available for sale

-- at year end, the investment is adjusted to FV and unrealized gain/loss goes to OCI until sold. -- unrealized gain (loss) = FV - BV. -- BV at purchase date = cost. -- when AFS bond is determined to be impaired because of an other than temporary decline in FV below cost, the asset must be written down to lower FV by recording a loss that is recognized on the income statement.

Allowance for bad debts (allowance for doubtful accounts)

-- balance = beg. bal + provision/estimate for bad debt - bad debt write offs.

funded status of pension plan would be reported on

-- balance sheet (aka statement of financial position)

bond anticipation notes

-- bond anticipation notes are current liabilities if the entity does not have the ability to refinance as a noncurrent obligation. -- other financing sources control would be used for proceeds of bonds issues or bond anticipation notes (BANs) when the entity has the ability and intent to refinance.

when interest is accrued but paid after year end

-- consistent with the matching principle, at year end interest expense will be debited and accrued interest payable will be credited for the amount accrued from dated date of note to year end. -- then remaining interest expense is debited at maturity when it is paid after year end.

consolidated COGS

-- consolidated COGS = sum of COGS of parent and sub - interco COGS - profit from interco sales. -- when company sells all interco inventory, the company must eliminate profit from COGS. -- when interco sells interco inventory, it becomes cost of sales, but COGS is overstated in intercompany consolidation, so sales and COGS must be reduced by the intercompany sales.

direct write off method of Accounts Receivables

-- during an account period, cash collections from customers would equal sales adjusted by deducting "accounts receivables written off" and deducting the "increase in accounts receivable balance"

elimination of excess depreciation (for consolidation)

-- elimination of excess depreciation = depreciation expense recorded by sub - consolidated depreciation expense. -- to eliminate effect of intercompany sale of depreciable asset, the asset should be shown in consolidated statement at original cost. Depreciation should continue as if the sale had not occurred. Therefore, the difference of depreciation expense between sub from asset purchased from parent and depreciation expense of what would have been for parent that sold the asset will need to be eliminated in consolidated financial statement.

gain or loss exchanging an asset for a noninterest bearing note receivable.

-- gain (loss) = present value of note - carrying amount of asset -- need to calculate present value factor with interest rate of note of similar type of note at the time of asset sale.

gain or loss from disposal of property (including involuntary conversions)

-- gain on disposal = proceeds or insurance proceeds - adjusted NBV. -- adjusted NBV = carrying value on disposal date + cost of new parts. -- NOTE: repair costs are expensed and would not become part of NBV.

valuation allowance (contra-account)

-- if there is a DTA during the year, then its likely that it has profit during the year because if it had a NOL during the year, then it implies that there is a >50% chance that the company will have NOLs in the future periods and will not have income to offset with future tax deductions. If it is probable that a company will not be able to utilize the benefits of a DTA, then a full valuation allowance is recorded and the net DTA is $0.

Salary according to partnership agreement

-- if yearly salary is written in the partnership agreement, then even if partnership reports a net loss, the salary should still be allocated to the partners. -- salary paid from partnership is treated as loss to partnership and also lowers partner's capital balance according to their P&L% ratio.

imposed nonexchange revenue transaction

-- imposed nonexchange revenue transaction recorded as receivable prior to the period when resources are required to be used (such as occupational licenses) should be reported as deferred inflows. -- example: amount collected in year 1 for year 2 occupational license fee would be reported as deferred inflows of resources.

consolidated income statement

-- includes 100% revenue and expenses of parent and percentage owned of all sub's revenue and expenses after the date of acquisition. The Basic Principles The consolidated income statement follows the same basic principles as the consolidated statement of financial position. The volume of adjustments are, however, fewer. The steps for consolidating the income statements are as follows: (1)Add together the revenues and expenses of the parent and the subsidiary. If the subsidiary is acquired part way through the year all the revenues and expenses of the subsidiary must be time apportioned during the consolidation process. (2)Eliminate intra-group sales and purchases. (3)Eliminate unrealised profit held in closing inventory relating to intercompany trading. (4)Calculate the profits attributable to the non-controlling interests. After the net profit for the year the split of profit between amounts attributable to the equity holders of the group and the non-controlling interests (to reflect ownership) is shown.

direct financing loan - lease receivable

-- lessors recording a lease receivable for a direct financing loan lease should include minimum lease payments plus any residual value, because the lessor can also expect to collect this residual value from lessee at culmination of lease. -- executory costs, like insurance, taxes, and maintenance are always recorded separately and do not affect the computation of minimum lease payments nor the lease receivable.

liabilities

-- liabilities are probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. -- liabilities are reported for estiamted expenses.

liability in general fund financial statement

-- liabilities in the general fund's financial statements would be an amount to be paid from current financial resources in accordance with the current financial resources measurement focus.

capitalize cost

-- list the expenditure as an asset on the balance sheet. Allocate to the income statement through depreciation or amortization of expense. -- An item is capitalized when it is recorded as an asset, rather than an expense. This means that the expenditure will appear in the balance sheet, rather than the income statement. You would normally capitalize an expenditure when it meets both of these criteria: Exceeds capitalization limit. Companies set a capitalization limit, below which expenditures are deemed too immaterial to capitalize, as well as to maintain in the accounting records for a long period of time. A common capitalization limit is $1,000. The materiality principle applies to the capitalization concept. Has useful life of at least one year. If an expenditure is expected to help the company generate revenues for a long period of time, then you should record it as an asset and then depreciate it over its useful life, which agrees with the matching principle.

proprietary funds and liability

-- proprietary funds, such as enterprise funds and internal service fund, carry their own debt. Amounts associated with enterprise fund debt is statement of net assets.

bonds: measurement basis and GAAP balance

-- purchased at par value means no discount nor premium. -- measurement basis: amortized cost. -- held to maturity: ignore the fair value, if purchased at par then record that par value. if there's discount or premium record amortized cost.

realize net cash receipt from bond payable

-- realize net cash receipt from bond payable = issued sales price + accrued interest - bond issuance cost.

stock dividend

-- receipt of stock dividend is not income -- it increases number of shares held and decreases cost basis per share. when stock dividend is declared: -- Dr. retained earnings and Cr. common stock by the same amount. Net effect to stockholders' equity is zero.

gains and losses on on investment should be reported in

-- statement of activities as increases and decreases in net assets without restrictions unless otherwise stipulated by donor or by law. In the event with restrictions without restrictions with earnings on investments restricted in perpetuity, losses are absorbed by the endowment.

Beneficiaries with a financial interest in recipient organizations recognize the change in their interest of the recipient organization on their ...

-- statement of activities.

the only two statements that are required for a defined contribution plan are

-- statement of net assets available for benefits of the plan AND the statement of changes in net assets available for benefits.

stock options

-- stock options outstanding are reduced at the exercise date.

foreign subsidiary of a u.s. parent should measure its assets, liabilities and operations using what currency?

-- subsidiary's functional currency. i.e. currency of its primary economic environment.

capital project fund

-- tax amount levied for capital addition would be accounted for in a capital projects fund. -- bond issued to fund construction is recorded in capital project fund and not debt service fund. -- The capital projects fund is a governmental fund. The measurement focus of governmental funds is the flow of financial resources. Because depreciation expense does not reflect the use of financial resources, it is not recorded in the capital projects fund.

income tax payable (cash to accrual)

-- tax not yet paid. -- estiamted income tax payments offset total income tax payments. -- for cash to accrual, income tax payable = total income tax expense minus estimated tax payments. -- total income tax expense = tax rate * taxable income. -- taxable income = cash basis pretax income + gains and losses from adjusting cash to accrual entries.

discount on note receivable

A contra asset account arising when the present value of a note receivable is less than the face amount of the note. The credit balance in this account will be amortized to interest revenue over the life of the note.

perpetual inventory system

A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand.

Principle Market

A market in which the greatest volume and level of activity determined by all suppliers occurs for the asset or liability, in which the entity participates. (Not the market where the entity sells the most, But where all suppliers as a whole sells the most.) If there is a principal market for an asset or liability, the price in that market will be the FV measurement, even if there is a more advantageous price in a different market. The reporting entity must have access to the principle market at the measurement date.

majority voting interest

A majority voting interest is achieved when control over an investee is established or more than 50 percent of the voting stock of the investee has been acquired.

periodic inventory system

An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period.

BAE BAE accounting

Let Dugger country originally appropriate $45,000. Dugger County would use BAE BAE accounting in its governmental funds by recording budget, activity and encumbrances separately and then reversing budget, activity and encumbrances separately. The County would reverse the full amount of the budgeted amount of the appropriations, originally recorded as a credit, as a debit of $45,000.

employee compensation accrual: vacation pay

Rule: Employees' compensation for future absences (mostly vacation) should be accrued if: 1. Services have already been rendered, and 2. The obligation relates to vested or accumulated rights, and 3. The amount can be reasonably estimated, and 4. Payment is probable.

Separate fund financial statements

Rule: Separate fund financial statements should be presented for governmental and proprietary funds to report additional and detailed information about the primary government. (GASB 34)

days sales in accounts receivable

The days' sales in accounts receivable ratio (also known as the average collection period) tells you the number of days it took on average to collect the company's accounts receivable during the past year. days sales in accounts receivable = 365*(net ending AR / net sales) OR: 365/(Sales/avg AR) Note: During the exam, use ending AR instead of Avg AR. net credit sales / average AR = AR turnover.

effective interest rate

The effective annual interest rate is the interest rate that is actually earned or paid on an investment, loan or other financial product due to the result of compounding over a given time period (usually annual effective rate). It is also called the effective interest rate, the effective rate or the annual equivalent rate.

Vesting

Vesting is a legal term that means to give or earn a right to a present or future payment, asset, or benefit. It is most commonly used in reference to retirement plan benefits when an employee accrues nonforfeitable rights over employer-provided stock incentives or employer contributions made to the employee's qualified retirement plan account or pension plan. It also is commonly used in inheritance law and real estate.

Most Advantageous Market Price (MAMP)

market with the best price for the asset (maximizes selling price of the asset) or liability (minimizes payment to transfer liability) after considering transaction costs. Note: although transaction costs are used to determine the most advantageous market, transaction costs ARE NOT INCLUDED in the FV measurement. The price in the most advantageous market will be the FV measurement only if there is no principle market. MAMP = net price = quoted price minus transaction costs, that is highest out of others for assets and lowest for liability.

present value of 1

contains the amounts that must be deposited now at a specified rate of interest to equal $1 at the end of a specified number of periods. -- present value of one = cost of both principal + interest at maturity? present value of 1 = PVF for appropriate periods and interest rate.

cash to accrual operating expenses (interest)

equals cash paid + increase in accrued expense payable - decrease in accrued expense payable + decrease in prepaid expense - increase in prepaid expense. - under accrual basis, add uncollectible rent or A/R written off back to revenue to get accrual revenue.

Days in inventory (inventory conversion period)

equals ending inventory / (COGS / 365 days). -- indicates average number of days required to sell inventory.

net sales

equals gross sales - returns, AFDA, discounts. or equals avg AR times AR turnover.

net income

equals net profit after tax. Note: the after tax amount of gain from discontinued operations is added to net profit after tax (net income). 2. adjustments for prior year will be reflected in beginning retained earnings, not on the income statement. 3. Unrealized gain will be reported in other comprehensive income.

Net realizeable value

equals the selling price of an asset less any disposal costs. It is used on Year end balance sheet when its decided to end operations and quickly (within 3 months) dispose of its assets.

total asset turnover

equals year end net sales / avg total assets. net sales = sales revenue - sales returns and allowances - sales discounts. -- a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue or sales income to the company.

AR turnover

equals year end net sales / year end avg A/R net. -- A/R net = A/R - allowance for doubtful accounts -- the number of times per year that a business collects its average accounts receivable. The ratio is intended to evaluate the ability of a company to efficiently issue credit to its customers and collect funds from them in a timely manner.

recognized subsequent events

events that provide additional evidence about conditions that existed at the balance sheet date, including estimates inherent in the process of preparing financial statements. Financial statements need to be updated for these events. 1. settlement of litigation. 2. loss on an uncollectible receivable. 3. fix of error: incorrectly wrote off asset and loss.

When there is a "change in entity" (such as resulting from 1. changing companies in consolidated financial statements. 2. Consolidated financial statements versus previous individual financial statements),

financial statements of all prior periods presented should be restated.

effective tax rate should reflect anticipated

foreign tax rates and available tax planning alternatives. In addition, the effect of other anticipated tax credits, capital gains rates, and foreign tax credits should be included.

gain/loss from retirement of bond

gain/loss from retirement of bond = (FV of bond + unamortized premium) - settlement price. -- There is no accrued interest when the redemption takes place on an interest date. -- Note that the gain is part of continuing operations because the transaction is a typical risk management strategy of the company.

work in process inventory

goods that are partway through the manufacturing process but not yet complete. 1. it is an asset account. 2. when costs on work in process is incurred, WIP asset account increases. 3. it is expensed when sold, not when it is being made. 4. since cost related to WIP is part of inventory, NI and RE are not impacted.

consolidated goodwill

goodwill = FV of sub - sub's net assets at FV FV of sub x % acquired = purchase price FV of sub = purchase price / % acquired.

net sale minus cost of sales equals

gross profit

Level 2 Inputs for Fair Value

inputs other than quoted market prices that are directly or indirectly observable for the asset or liability. Examples: 1. quoted prices for similar assets or liabilities in active markets. 2. quoted prices for identical or similar assets in markets that are not active.

intercompany cost of goods sold

intercompany cost of goods sold = intercompany revenue times COGS%. COGS % = parent's COGS / parent's revenue.

calculate interest revenue (for accrual basis)

interest revenue at year end = increase in interest receivable plus interest collected in the year.

interfund receivables and payables between governmental and enterprise activities in preparing government wide financial statements for a governmental activity should be reported in

internal balances and aligned so that they sum to zero on the financial statements.

what does "sales are realized at 10% of expected lifetime sales in each year" and "anticipates largest volume of sales would occur in final year of software's useful life" mean?

it means expected sales per year will be 10% of value of asset sold up to amount of useful life of asset, but the last year's sale will have remaining portion of sales.

loss on disposal of land

loss on disposal of land = cost of land - FV of land.

gain from sale of asset used for operations is reported as

net concept, showing total net gain as part of continuing operations, NOT net of income taxes. 1. gain = proceeds from sale minus carrying amount of fixed asset sold. 2. part of continuing operations. (unusual an infrequent) 3. Not considered a component of an entity. (discontinued operations are only reported for the disposal of a component of an entity.

new patient service revenue

new patient service revenue = gross patient revenues including charity care - charity care - contractual adjustments.

interim financial statements emphasizes which enhancing quality?

timeliness. The extensive use of estimates in interim financial statements means that they are less verifiable. Interim financial statements emphasizes timelines over verifiability. It provides financial information based on actual performance to date and estimates prior to year end. It should be viewed as integral part of an annual period.

charitable remainder annuity trust

trust in which the income goes to a private person and the remainder goes to charity. contribution recognized by charity = cash donation received - PV annuity payable to private person.

unassigned fund (gov't)

unassigned fund balance is the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and has not been restricted, committed, or assigned to specific purposes within the general fund.

unassigned fund balance

unassigned fund balance represents the amount of current resources carried forward into the following year that will be available for appropriations. -- assuming there are no encumbrances at year end and expenditures were less than appropriations, any commitment of assignment of fund for encumbrances would be released and unassigned fund balance would increase.

modified approach (government)

under modified approach, infrastructure expenditures are reported as expenses except for outlays that result in additions or improvements, which would be capitalized.

journal entry made for internal accounting when a purchase order is issued is

when a purchase order is issued is -- Dr. Encumbrances and Cr. Budgetary Control note: amount reported for purchase order issued for encumbrance and budgetary control should equal. if it is not then most likely it is a recording error. JE when supplies and invoice are received: Dr. Budgetary control $a Cr. encumbrances $a Dr. expenditures (actual) $b Cr. Vouchers payable $b

allocation between prepaid taxes and tax payable

when part of annual tax is paid during the year, tax payable decreases by amount paid times fraction of months / 12 already passed. And remaining payment is used to increase prepaid tax for remaining months.

comparative vs noncomparative financial statements

1. If there is comparative financial statements, prior period adjustments require retroactive treatment for the years presented. If there is no past year data, the adjustment is made in current year.

incremental costs of obtaining a contract

1. are costs incurred that would not have been incurred if the contract had not been obtained and are recognized as an asset if the entity expects that it will recover these costs. i.e. costs to obtain contract, legal fees, payment to employee involved. 2. An entity will recognize an expense if the costs would have been incurred regardless of whether the contract was obtained. i.e. design costs, printing costs, costs tied to satisfied performance obligations, wasted labor, material costs, G&A costs, COGS. -- design costs and printing costs would be expensed as cost of sales related to the contract.

calculation of gain on insurance settlement of casualty

1. equals replacement cost (proceeds) less deductible less dismantling expense (costs) less current carrying amount.

expense

a reduction of asset or increase in a liability over a period of time. 1. refundable expense cannot be reported as an expense.

How to adjust net income for correcting errors

add the following to net income: 1. unrealized loss on market value of available for sale investments in debt. 2. adjustments to profits prior years for errors in depreciation.

revenue for agent

agent will record revenue of percentage commission of total revenue. Agent will not record the total revenue from sale.

bond sinking fund

an amount set aside to pay a bond issue when due. -- is a fund that a company contributes cash to each period so that it has enough to pay off the bond at maturity.

collections received for service contracts for services not yet given should be recorded as

an increase in an unearned (deferred) service revenue account. Note: service revenue does not increase until services are performed.

Allowance for Doubtful Accounts

contra-asset account containing the estimated uncollectible accounts receivable. -- when allowance goes up, bad debt goes up by the same amount.

current reproduction cost

cost of producing new and substantially identical assets, at current prices, adjusted for depreciation to date). It is used in optional supplemental price level financial statements.

economic entity assumption

is that economic activity can be accounted (be known of) for when considering an identifiable set of activities.

current market value or fair value

is the price to sell (not acquire) an asset.

how to allocate discount of multiple obligation

it should be allocated proportionately across all obligations within the contract. For example, if there is a contract for $240,000 with two obligations ($200,000; $100,000), the $60,000 discount will be assigned $40,000 to first obligation and $20,000 to the second.

Matching

matching of costs and revenues is simultaneous or combined recognition of the revenues and expenses that result directly and jointly from the same transactions or other events.

component of relavance

materiality, predictive value, confirming value

Monetary unit assumption

means that money is the common denominator for economic activity and provides an appropriate basis for accounting measurements and analysis.

to charge an account

means to use up the account amount, which lowers that account.

gain/loss from disposed asset held for sale

net asset = gain. net liability = loss 1. old asset held for sale should be valued at the lower of its book value or net realizable value (fair value less costs to sell). 2. asset held for sale are no longer depreciated.

PTD

profit to date

when to recognize revenue with bill-and-hold arrangement

recognize revenue when customer obtains control of product. This can happen when: 1. when product is shipped to or delivered to customer depending on terms of contract. 2. or it meets all of following criteria:a. must be a substantive reason for the arrangement.b. product has been separately identified as belonging to the customer.c. product is currently ready for transfer to the customer.d. entity cannot use the product or direct it to another customer. 3. synonyms: "accepted and awaiting pick up", "set aside" (therefore belonging to the buyer).

input method to recognize revenue

revenue is recognized based on the entity's efforts or inputs to the satisfaction of the performance obligation relative to the total expected inputs. Examples: costs incurred relative to total expected costs, resources consumed, labor hours expended, and time elapsed.

nonrefundable fee collected for lease reported how?

the fee must be prorated on per day or monthly basis up to length of the lease. Example: if $540 is paid for 1 year lease, and lease started on Sept. 1, the Dec. 31 year ended income statement should have (540/12)*4= rent revenue of $180. Then on to this report the monthly rent earned.

once decision is made to dispose of a component of a business and meets the criteria to be classified as held for sale

the operating results of the component for the period reported on, and any gain or loss from the disposal, should be reported separately from continuing operations, net of tax. Gain/loss from discontinued operation should be recognized in the year that it is incurred, regardless whether those losses occurred before or after the date of decision to dispose of the component was made.

how to report payment received in advance

the related revenue should be recognized evenly over the contract year as the services are performed (GAAP accrual basis of accounting). 1. it is reported as a liability (unearned revenue) (current of long term). 2. from payor's perspective, it will be reported as prepaid expense.

When the effect of a change in accounting principle is inseparable from the effect of a change in accounting estimate (i.e. change from installment method to immediate recognition method because uncollectible accounts can not be estimated.)

the reporting treatment for the overall effect is as a change in estimate. 1. Thus, the effect is reported prospectively as a component of income from continuing operations.

when is revenue recognized?

when it is earned. i.e. all the service or good is given.

earliest period that a component of an entity can be reported in discontinued operations is

when the component meets the following "held for sale" criteria: 1. management commits to a plan to sell the component. 2. the component is available for immediate sale in its present condition. 3. an active program to locate a buyer has been initiated. 4. the sale of the component is probable and the sale is expected to be completed within one year. 5. the sale of the component is being actively marketed. 6. it is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn.

present value of note payable

-- equals annuity per year or period times present value factor.

how should error be reported?

1. The cumulative effect of the error in error years should be reflected in the carrying amounts of assets and liabilities as of the beginning of year the errors were found. 2. past financial statements must be restated to correct an accounting error.

Allocation

the accounting process of assigning or distributing an amount according to a plan or a formula.

If a change in accounting estimate cannot be distinguished from a change in accounting principle,

the change is considered a change in accounting estimate treated as a change in accounting principle and is accounted for prospectively.

discontinued operations

the disposal of a significant component of a business. 1. part of discontinued operations. reporting discontinued operations that occur at midyear: To adequately capture the impact of discontinued operations, it should be included in net income and disclosed in the interim financial statement notes.

infrequent in occurrence and/or unusual in nature should be presented separately as a component of "income (loss) from continuing operations" when

the transaction results in a gain or loss. The nature of the item and the financial statement effects should be disclosed on the face of the income statement or in the footnotes. It is displayed net of taxes. examples: 1. loss from foreign currency transaction 2. union strike shuts down operations for months. 3. foreign government takes possession of a company's only plant. 4. damage to a factory to an earthquake

which characteristic enhances both relevance and faithful representation?

timeliness. It is a characteristic that enhances the usefulness of information that is relevant and faithfully represented.

large accelerated filer

- floats over $700 million - filing deadline for 10-k is 60 days after end of fiscal year (EOFY) for Large accelerated Filers. 75 days after EOFY for accelerated filers, and 90 days after EOFY for all other registrants.

operating assets

-- all current assets except cash and cash equivalents

inherent

-- built in

consolidated cost of sales

-- consolidated cost of sales = sum of cost of sale of parent and sub - intercompany COS.

allowance for discounts

-- equals AR times discount %.

imposed non exchange revenue

-- examples: property taxes and fines.

recognizing revenue for sale of gold, silver, precious metals and meat and some agricultural products

-- in essence, revenue is recognized at time of production and not at the time of sale. -- they are valued at net realizable value which equals net selling price minus costs of disposal. -- inventories reported at net realizable value include: gold and silver, when there is effective government controlled market at a fixed monetary value. -- revenue recognized by seller of these inventory = market price or legislation price. (NOTE: DON'T USE THE ACTUAL SELLING PRICE)

Purchasing a sole proprietorship

-- the beginning capital balance will be at cost basis (purchase price).

partner receive % interest on capital balance

-- treated as salary from partnership and comes out of partnership profit and so it is deducted (loss treatment) from partnership profit.

unrealized gain or loss

-- unrealized gain or loss gets accumulated into accumulated other comprehensive income under equity of balance sheet. -- unrealized gain is a credit normal balance -- unrealized loss is a debit normal balance

convert cash to accrual basis

1. Add increases in current assets. 2. Subtract decreases in current assets. 3. Add decreases in current liabilities. 4. Subtract increases in current liabilities.

revaluation surplus vs the cost model

1. Under IFRS, the company can choose to use the cost or revaluation model. 2. revaluation surplus = FV minus carrying value at fiscal year end. Included in OCI.

three primary user groups of external financial reports of state government

1. citizens: advocate groups 2. legislative/oversight groups 3. investors/creditors

separate line item on income statement

1. interest 2. SGA

government wide financial statements should classify net assets as:

1. net investment in capital assets 2. restricted assets 3. unrestricted assets

provision for income tax expense

= taxable income * tax rate.

floats

??

balloon loan

A balloon payment mortgage is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a balloon payment because of its large size.

Accrual Basis Accounting

Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company's financial statements, even if cash was not exchanged.

what are disclosed in footnotes?

Accounting details: 1. future minimum lease payments. 2. composition of sales by segments. 3. depreciation expense. 4. information on changes in stockholders' equity. 5. information about significant asset and/or liability accounts. 6. description of company's pension plans 7. carrying value, gross unrealized gain and losses on company's marketable securities. 8. material information regarding a company's inventory. 9. concentration in volume of business transactions with particular customers that contribute significant sales. Need to state in footnote that these concentrations increase risk of loss stating this fact. More notes: 1. information not pertinent to a company's financial statements is not included in footnotes.

reclassification adjustment

Adjustment made when at the end of a period in which a company sold securities, to ensure that gains and losses are not counted twice in comprehensive income. Without such an adjustment, a company might report realized gains or losses as part of net income but also show the gains or losses as part of other comprehensive income in the current or previous periods. Companies generally report reclassification adjustments in the notes to the financial statements.

Recovery of Accounts under Allowance method

After a seller has written off an accounts receivable, it is possible that the seller is paid part or all of the account balance that was written off. Under the allowance method, if such a payment is received (whether directly from the customer or as a result of a court action) the seller will take the following two steps: 1. Reinstate the account that was written off by reversing the write-off entry. Dr. AR and Cr. Allowance 2. Process payment. Dr. Cash Cr. AR

interfund transfers

Amounts transferred from one fund to another. -- interfund transfers are recorded as other financing sources (uses) rather than revenues (expenditures) for governmental funds. They are simply recorded as interfund transfers for proprietary funds. -- it is part of operating activities. -- They affect both governmental and proprietary funds.

percentage of sales method (estimates bad debt)

CY bad debt = CY sales * % of sales.

operating cash flow ratio

Cash Flows from Operating Activities / Ending Current Liabilities

three types of funds

Governmental Funds Proprietary Funds Fiduciary Funds

Valuation allowance for bad debt

In accounting, a valuation account is usually a balance sheet account that is used in combination with another balance sheet account in order to report the carrying amount of an asset or liability. An example of a valuation account that is associated with an asset is the Allowance for Doubtful Accounts. This account's credit balance will be combined with the debit balance in Accounts Receivable in order to report the carrying amount of the company's accounts receivable. Other valuation accounts include Discount on Notes Receivable, Accumulated Depreciation, and allowance accounts used with inventory and investments.

issued shares vs outstanding shares

Issue shares is the total shares that are issued by the company to raise the funds, whereas, outstanding shares are the shares available with the shareholders at the given point of time after excluding the shares which are bought back. Outstanding shares are less than or equal to Issued shares. Outstanding shares cannot be more than issued shares but can be equal to it if there is no treasury stock. Outstanding shares = Issued shares - Treasury stock

Level 1 Inputs for Fair Value

Most reliable, level 1 measurements are unadjusted quoted prices in active markets for "identical" assets or liabilities that the reporting entity has access to on the measurement date.

return on equity

Net income / avg owners equity

cumulative preferred stock

Preferred stock on which undeclared dividends accumulate until paid; common stockholders cannot receive dividends until cumulative dividends are paid.

The FASB's due process for setting accounting standards includes which of the following procedures?

Proposed FASB amendments to the Accounting Standards Codification are issued for public comment in the form of exposure drafts. At the end of the comment period, the FASB will analyze all comment letters and position papers. When the board members of the FASB are satisfied that all reasonable alternatives have been considered, the FASB staff will prepare an Accounting Standards Update for approval by the board (majority vote is required).

recognizing revenue with a refund policy.

Recognize revenue when refund can be estiamted and be put to refund liability. A refund liability represents the amount that an entity does not expect to be entitled to receive. If it cannot be estimated, then you have to wait till the refund policy expires to recognize revenue.

amortization of software cost

Software costs are capitalized once technological feasibility is established and are then amortized using the greater of the straight-line amortization over the useful life of the software or the percentage of estimated sales achieved. First software is capitalized: Dr. software as fixed asset Cr. Payroll accrual/clearing Amortize software: Dr. amortization expense Cr. accumulated amortization of software

special purpose governments engaged only in business type activities (such as utilities): what statements are required to be presented?

Stand alone business type activities are accounted for as an enterprise fund and would include both basic financial statements and required supplementary information consistent with GASB #34 guidance. -- Enterprise funds are often used for utilities, and the required financial statements will be a statement of net position (balance sheet), statement of revenues, expenses, and changes in net position (income statement), statement of cash flows, and footnotes. In addition, Management's Discussion and Analysis (MD&A) and Required Supplementary Information (RSI) must also be included. The fund financial statements and the government wide financial statements would be identical so they would only be presented once. Basic financial statements: GASB 34 require presentation of basic financial statements and required supplementary information. -- Basic financial statements are defined as government wide financial statements, fund financial statements, and notes to the financial statements. -- Supplemental information covers a wide range of information including management's discussion and analysis (MD&A) and supporting schedules, such as combining financial statements by fund type and budget versus actual presentations.

Stated interest

Stated interest = cash received / FV of bond.

reporting inventory on interim financial statements

THINGS THAT SHOULD BE RECOGNIZED IN INTERIM REPORTS: -- permanent changes in inventory's market value should be reflected in interim financial statements in period incurred. -- lower of cost or market method should be applied to interim periods. THINGS NOT RECOGNIZED IN INTERIM REPORTS: -- temporary changes in market value of inventory. -- gains from valuations in previous interim periods. For interim reports, timeliness is emphasized over reliability. Therefore, the company will make more of an effort to get the reports out faster even if it sacrifices some of the reliability of the data presented.

form 40-F

The equivalent of a 10-K filing for Canadian companies registered with SEC and must contain audited financial statements.

interest expense under finance lease, uses effective interest method

The lease term began January 2, Year 1, on a lease valued at $758,000. The first payment of $200,000 was made on December 31, Year 1. Since the interest rate is 10% and one year has expired, Marx Co.'s interest expense is computed as 10% of $758,000 or $75,800. The remainder of the $200,000 payment reduces the obligation under the lease.

functional expense categories for a nongovernmental not for profit organization

The most common functional classifications for nongovernmental not-for-profits are program services and support services that may include fund-raising and management and general.

notional amount

The notional amount on a financial instrument is the nominal or face amount that is used to calculate payments made on that instrument. This amount generally does not change and is thus referred to as notional.

purchase method of accounting

The purchase method initially records additions to inventory as an expenditure and then establishes inventory balances and related non-spendable fund balance amounts based on physical counts and valuations at year end.

single step income statemente

The single-step income statement will include in total revenues all sales of goods, services, and rentals. Purchase discounts are not included in revenue, but instead reduce cost of goods sold. The recovery of accounts written off does not hit the revenue account.

in financial reporting it usually uses accrual accounting and expenses are reported when incurred.

True. Incurred meaning benefit from the cost is received whether service or a good.

the corridor approach

Under GAAP only, once the beginning balance of actuarial gains and losses (unrecognized gains and losses) exceeds 10% of the greater of beginning PBO or plan assets, amortization is required. The excess amount over the 10% "corridor" is amortized as a component of periodic pension cost in the income statement over the average remaining service life of the employees. -- method to calculate net gain or loss amortization to be included in net periodic pension cost under US GAAP.

cash flow hedge

Used by companies to hedge exposures to cash flow risk, which results from the variability in cash flows. Companies account for derivatives used in cash flow hedges at fair value on the balance sheet, but they record gains or losses in equity, as part of other comprehensive income.

revenue

are inflows (increase) or other enhancements of assets and/or settlements (decrease) in liabilities resulting from operations in liabilities resulting from the entity's ongoing major operations, NOT from incidental operations.

Absence of seasonal fluctuations, requirement to present balance sheets on which 10-Q?

at end of preceding fiscal year in addition to most recent quarter end.

interest receivable equals

balance of note at beginning of year times interest rate.

working capital

current assets - current liabilities

quick ratio

equals (cash + net AR + marketable securities) / current liabilities

form 6-k

filed semi annual by foreign private issuers and contains unaudited financial statements.

periodicity assumption

is that economic activity can be divided into meaningful time periods.

current liabilities

liabilities due within a short time, usually within a year. 1. note: deferred income tax payable is reported as non-current. 2. discount on payable lowers liability. (i.e. need to subtract from liabilities)

changes in value of derivatives used for fair value hedge are reported in

net income. i.e. current earnings as unrealized gain/loss.

operating items for multistep income statement

operating expenses: 1. insurance 2. salaries 3. rent 4. depreciation

present value

present value = future amount * PVF future amount = PV / PVF

Justification for the method of determining periodic deferred tax expense is based on the concept of:

recognition of assets and liabilities.

vesting period

required length of employment to be eligible to receive company paid pension benefits. The vesting period is the period of time before shares in an employee stock option plan or benefits in a retirement plan are unconditionally owned by an employee. If that person's employment terminates before the end of the vesting period, the company can buy back the shares at the original price.

Form 8-k

required to be filed by all companies registered with the SEC. The form reports on major corporate events, including corporate asset acquisitions/disposals, accountant changes, financial statement changes, management changes, changes in securities, etc.

working capital turnover

sales / average working capital working capital = current assets - current liabilities

non operating items for multistep income statement

separates operating and non operating items. Non operating revenue: 1. interest 2. dividend 3. gain on sale of equipment Non operating expense: 1. loss on write down of inventory 2. interest

preferred stock convertible

shares of preferred can be exchanged for shares of common stock by the owner.

subs carrying value in inventory purchased from parent

subs carrying value in inventory purchased from parent = % of inventory held in hand times interco COGS.

replacement (acquiring) cost

the amount of cash or its equivalent that would be paid to acquire or replace an asset currently. It is used for optional supplemental price level financial statements.

Basic Earnings per share

the amount of net income after federal income tax belonging to a single share of stock. -- Earnings per share for income from continuing operations and for net income must be presented on the face of public company's income statement. EPS = (net income - preferred dividends) / weighted average outstanding common shares -- weighted average of outstanding common shares should be time-weighted for the year. -- (cumulative preferred stock) When preferred stock is cumulative, the dividend accumulated during the period (regardless of whether they have been declared) must be subtracted from net income to calculate basic EPS. Note: dividends in arrears are not added but just the amount accumulated during the period b/c Dividends in arrears were subtracted from income in the year that they first were an obligation of the company. -- BV per share of common stock = ttl value of CS / common shares outstanding. -- TTL value of CS = cumulative preferred stock + CS + APIC + RE - preferred stock liquidation value - dividends in arrears. preferred stock liquidation value = preferred outstanding shares * liquidation value. dividends in arrears = preferred stock shares * par value per share * stated % * amount of years in arrear. -- noncumulative preferred dividends declared during the period (regardless of whether they have been paid) must be subtracted in numerator from net income. -- when computing basic EPS, convertible securities are ignored for purposes of computing weighted average of common shares outstanding.

loss on an uncollectible receivable (recognized subsequent event)

the effects of a customer's bankruptcy filing after the balance sheet date but before the date that the financial statements are issued or available to be issued should be considered when determining the amount of the uncollectible receivable to be recognized in the financial statements on the balance sheet date.

reporting prepaid current asset operating cycle

the minimum operating cycle for purposes of reporting a "prepaid" current asset is one year (or 12 months).

Realization

the process of converting noncash resources and rights into money. SFAC 6 para. 143

Recognition

the process of recording an item in the financial statements of an entity.

A transaction denominated in a foreign currency is recorded at what rate on the date of transaction?

the spot rate.

capitalize software cost means

to put cost of software as a fixed asset, which will be amortized annually.

opening balance of prepaid insurance is normally all used up by the next prepaid insurance payment date.

true

form 10-k

- 10-K must be filed annually by US registered companies. - contains audited financial statements. - Filed annually by US registered companies.

Form 11-K

- annual report of an entity's employee benefit plan and would include financial statements of the benefit plan.

net operating loss

-- TCJA does not allow carrybacks. NOLs arising in tax years ending after 2017 can only be carried forward. The 2-year carryback rule in effect before 2018, generally, does not apply to NOLs arising in tax years ending after December 31, 2017. Exceptions apply to certain farming losses and NOLs of insurance companies other than a life insurance company. -- Also, for losses arising in taxable years beginning after Dec. 31, 2017, the net operating loss deduction is limited to 80% of taxable income (determined without regard to the deduction). -- when NOL is used income tax expense is debited and deferred tax asset is credited.

Sales-Type Lease (calculation)

-- The Lessee gains control of the underlying asset. -- The lessor will recognize a profit/loss assuming the collectibility of any residual value guarantee and lease payments themselves are probable on the date the lease commences. If collectibility is not probable, the lease payments received will be treated as deposit liabilities. Profit on sale in sales type lease = Present value of payments - carrying cost.

redemption of bonds payable

-- The redemption of bonds payable refers to the repurchase of bonds by their issuer. This usually occurs at the maturity date of the bonds, but may occur earlier if the bonds contain a call feature. In the latter case, the issuer calls the bonds early in order to take advantage of a decline in the market interest rate. -- it is a cash outflow, financing activity

Goodwill/intangible adjustment under GAAP

-- US GAAP requires that goodwill be tested for impairment at the reporting unit level. -- Once the goodwill loss has been fully recognized, it cannot be reversed. -- impairment loss = GW BV - goodwill implied FV -- goodwill implied FV = FV GW - allocated amount of reporting units FV to its assets and liabilities other than GW.

allowance for doubtful accounts under aging method - aging the receivables method (balance sheet approach)

-- Under the aging method of calculating uncollectible accounts, a schedule is prepared categorizing accounts by the number of days of months outstanding. Each category's total dollar amount is then mulitplied by a percentage representing uncollectibility based on past experience. The sum of the product for each aging category will be the desired ending balance in the allowance account. -- prior year allowance is ignored.

weighted average method for capital balances

-- WA capital balance = sum of capital account activity times months held divided by 12 months times interest rate.

current income tax liability

-- equals current tax expense minus estimated tax payments

guaranteed minimum expense

-- expense will be the higher of guaranteed minimum or % of some factor.

franchise

-- franchise cost is amortized over its useful life. -- the % franchise fee is operating expense and is not related to intangible asset balance.

bank to book balance

-- ignore bank errors (service charges, NSF checks, credit memos, customer collections via wire transfer. -- subtract checks outstanding and add deposits in transit.

transaction gain or loss

-- is reported on year end income statement.

liquidating dividend

-- is the dividend paid in excess of retained earning balance.

a qualified deriviative

-- may be used to hedge exposure to variability in cash flow associated with an asset, liability, or a forecasted transaction (but not firm commitment, which would be fair value hedge).

ordinary annuity (annuity in arrears)

-- payments are made at end of each period.

prepaid insurance: treatment for book and tax

-- prepaid insurance would be deducted for tax purposes in the year in which it is paid, but for book purposes in the subsequent year for the period covered by the policy. -- when it increases, it increases deferred income tax liability

note receivable

-- trade notes and accounts receivables with customary trade terms NOT exceeding one year may be recorded at FV. Otherwise it should be recorded in PV. -- PV of note receivable = (principal + interest) X PVF -- interest = FV X interest rate X life in years. (don't use market rate)

accumulated other comprehensive income under IFRS

-- under IFRS, remeasurements of the defined benefit liability (asset), including remeasurements from actuarial gains, are reported in other comprehensive income and are not reclassified (amortized) to the income statement. -- actuarial gain is reported in OCI under IFRS.

Journal entry for debt forgiveness

-- when a lender forgives debt it makes entry: Dr. bad debt expense Cr. Valuation Allowance

times interest earned

--measures the ability of a company to cover interest charges. The greater that ability, the less the risk of bankruptcy. -- times interest earned = EBIT/ interest expense -- EBIT = earnings before interest expense and taxes

trade discount on sale of merchandise

--trade discount of 30% and 20% means to take of 30% from price and then 20% off from reduced price. -- 2/15, n/40 means 2% off sale if buyer pays all of price in 15 days and if not buyer needs to pay by 40 days. -- expected remittance from buyer to seller = price minus any discounts plus prepaid delivery cost/loan of delivery cost by seller for buyer.

pledging (assigning) accounts receivable

--using accounts receivable as collateral for a loan -- the company retains title to the receivable but "pledge" that it will use the proceeds to pay the loan. -- pledging requires only note disclosures. -- the A/R is not adjusted.

Revenue test for reportable segments

1. A segment must include at least 10% of combined (intersegment and unaffiliated customers) revenues. 2. Also works for operating income and identifiable assets.

Required disclosure under GAAP for reportable segment of an enterprise

1. Both profit or loss and total assets should be disclosed under US GAAP. (In disclosure questions, if you are not sure, disclose most rather than the least.) 2. If an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule doe not apply with liabilities. 3. ONLY publicly traded enterprises are required to report on business segments.

Preparing Interim Financial Statements

1. GAAP that were used in the most recent annual report of an enterprise should be applied to interim financial statements of the current year, unless a change in accounting principle is adopted in the current year.

Balance sheet during construction period for percentage of completion method F1 M4

1. If CIP > Progress billings at year end, current assets = CIP in excess of progress billings. 2. If Progress billings > CIP at year end, current liabilities = progress billings in excess of CIP. 3. CIP includes incurred and estimated gross profit earned to date. 4. The up to date or aggregate amount of CIP and progress billings should be used.

Disclosure requirement for public business enterprises

1. In order to conform to GAAP, financial statements for public business enterprises must report segment information about a company's major customers if (the fact) that customer provides 10% or more of the combined revenue, internal (intersegment), and external (unaffiliated), of ALL operating segments. Not just for "a particular" segment. 2. Unaffiliated customer sales and intracompany sales must be disclosed separately.

Unrealized Gain (loss) at date of transfer (reclassification) of held-to-maturity debt security to available-for-sale debt security

1. Unrealized gain (loss) is reported in OCI. 2. Held-to-maturity debt security is valued at amortized cost. 3. Available-for-sale debt security is valued at fair value. 4. At date of reclassification, unrealized holding gain (loss) reported in OCI = fair value at time of transfer minus amortized cost value. 5. At year end, an adjustment to unrealized gain (loss) must be recorded in OCI for change in fair value at year end.

How to complete income statement on simulations:

1. When trial balance is given, and additional information is given to make adjustments, remember to add or subtract amounts from the amount in the trial balance.

Accumulated Other Comprehensive Income

1. component of stockholder's equity.

going concern mitigation

1. consideration should be given to an entity's plans to mitigate the conditions or events that raise substantial doubt about its ability to continue as a going concern only if: a. it is probable that the plans will be effectively implemented, and b. it is probable that the implemented plans will be successful in mitigating the adverse conditions or events.

Quarter Interim Financial Statements

1. costs that benefit multiple periods should be allocated equally to those periods. If quarter interim is used, costs should be allocated equally to each quarterly period contained in the period that cost benefited periods starting from month the cost was paid till end of year. 1a. expenses included in quarter interim = sum of (expense divided by number of quarters covered in the year). 1b. EX: if expense is paid in Jan. 15. then that would include quarters 1 to 4. So divide expense by 4, and that would be included in each quarter. 2. types of expense: property tax, repairs, Rules: The entire amount of the gain on sale of equipment should be reported during the period incurred. A "cumulative effect" type accounting change is not included in the net income of the period of change; instead, the beginning of the year retained earnings is restated. Expenses that benefit more than one interim period, such as property taxes, are allocated among the periods benefited.

How to report prepaid insurance and insurance expense when insurance policy is renewed.

1. debit insurance expense for the remaining amount of previous policy plus portion used of new policy in the month. 2. debit prepaid insurance for new policy bought minus portion used in the month.

correct accounting

1. equals original accounting plus correction.

gain/loss on disposed business segment

1. equals sales price minus sales fee minus book value of segment.

financial statements are considered to be "available to be issued" when:

1. for entities that do not file financial statements with the Securities and Exchange Commission, the subsequent event evaluation period runs through the date the financial statements are available to be issued, and that date is defined as the date when (1) the financial statements are in a form and format that comply with GAAP and (2) by which all approvals for issuance have been obtained. Note: it is not necessary that financial statements have actually been distributed/issued.

components deemed as reportable segments: size test

1. if absolute amount of its reported profit or loss )(net income or net loss) is 10% or more of the greater, in absolute amount, of: a. The combined reported profit of all operating segments that did not report a loss, or b. combined reported loss of all operating segments that did report a loss.

liquidation basis of accounting

1. only time a balance sheet is required under the liquidation basis of accounting is when the entity's liquidation is imminent (unavoidable). 1a. If a company is NOT considered a going concern, its financial statements should be prepared using the liquidation basis of accounting.

operating loss are reported

1. operating losses are recognized in full in the period incurred.

operating profit by segment

1. operating profit by segments is based on the measure of profit reported to the "chief operating decision maker." 2. operating profit = sales minus operating costs. 3. Does not include costs that cannot be directly traceable and interest expense.

A debtor is relieved of its obligation to the creditor only by:

1. paying the creditor 2. being released of the debt judicially or by the creditor. (i.e. additional liability is considered remote). -- Considering debt as "extinguished" (defeasing debt) by placing cash in an irrevocable trust is not GAAP for "extinguishing of debt"

Fundamental qualitative characteristics of useful financial information are

1. relevance. 2. faithful representation

Under Reg. S-X, filing an entity's annual financial statements filed with the SEC

1. should include minimum of two balance sheets of two most recent fiscal years, statement of income, changes in owner's equity, and cash flows for the three fiscal years preceding the date of the most recent audited balance sheet.

interest payable

1. will total the amount of interest that has not been paid in cash. 2. no interest payable will be recorded for non-interest bearing notes. 3. from date interest was paid last before end of year up to end of year is the portion of interest payable.

cost of stock rights

= (FMV Rights / (FMV rights + FMV Stock Ex rights)) X Cost of Stock No entry is made when the rights are issued since no consideration is given. If the rights are exercised and stock is issued, then common stock and additional paid-in capital increase.

depreciation for the year equals

= (depreciable cost - salvage value) / remaining useful life.

liability for deferred income taxes

= (financial income - taxable income) * income tax rate

Amortization of Existing Net Obligation or Net Asset at Implementation (component of pension cost)

= (projected benefit obligation - fair value plan assets) / greater of 15 years or average employee job life = minimum amortization = amortization of transition asset initial unfunded obligation = (projected benefit obligation - fair value plan assets) = unrecognized net transition asset

deferred income tax expense

= CY temporary differences times future tax rate.

increase in stockholder's equity from troubled debt restructuring

= Face value of payables - Fair value of assets/equity transferred + stock held at fair value.

return on assets

= Net income/ average total assets. from = net profit margin * total asset turnover = (net income / net sales) * (net sales / avg total assets) -- measures the amount of net income generated for each dollar invested in assets tip: "return on blank" means net income divided by blank.

interest revenue (cash to accrual)

= cash from interest + interest receivable - unearned interest

bargain acquisition

A bargain purchase involves assets acquired for less than fair market value. In a bargain purchase business combination, a corporate entity is acquired by another for an amount that is less than the fair market value of its net assets. -- The difference is recognized as a gain by the acquirer at the time of acquisition.

commercial substance

A business transaction is said to have commercial substance when it is expected that the future cash flows of a business will change as a result of the transaction. A change in cash flows is considered to be when there is a significant change in any one of the following (not including tax considerations): Risk. Such as experiencing an increase in the risk that inbound cash flows will not occur as the result of a transaction; for example, a business accepts junior secured status on a debt in exchange for a larger repayment amount. Timing. Such as a change in the timing of cash inflows received as the result of a transaction; for example, a business agrees to a delayed payment in exchange for a larger amount. Amount. Such as a change in the amount paid as the result of a transaction; for example, a business receives cash sooner in exchange for receiving a smaller amount.

demo cost - demolition

A change in method of accounting for demo costs is a change in accounting principle inseparable from a change in estimate. When a change in accounting principle is considered inseparable from a change in estimate, the change is handled as a change in estimate - prospectively. No cumulative effect adjustment of change in accounting principle is made.

cash overdraft

A credit balance in the cash account; results from checks being written for more than the cash amount on deposit; should be reported as a current liability.

deferred revenue

A liability created when a business collects cash from customers in before/advance of completing a service or delivering a product.

nonfinancial asset

A nonfinancial asset is an asset with a physical value. Examples include real estate, equipment, machinery or a vehicle. A financial asset, on the other hand, has value based on a contractual claim, rather than a physical net worth, and includes stocks, bonds and bank deposits.

non interest bearing note

A note without an interest rate written on the face, whose face amount is the future value. -- non interest bearing notes payable are reported at the PV of future cash flow. -- If non current portion of note is refinanced, the new refinanced price becomes the PV of non current portion of future cash flows. Noninterest bearing notes payable are reported at the present value of future cash flows. The present value of the noncurrent future cash flows totaling $950,000 equals $418,250 (creating a discount on notes payable of $531,750). The present value of the current portion ($50,000 due January 2, Year 2) of the liability is $50,000.

loan guarantee

A promise by a third party to cover a loan for someone else in case of default.

Other Comprehensive Basis of Accounting (OCBOA)

A term used to encompass bases of accounting that are not GAAP. Bases included are cash, modified cash, regulatory basis, income tax basis, and substantial support criteria basis. (special purpose frameworks). - OCBOA financial statements cannot use accrual basis financial statement titles. A basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution is not a comprehensive basis of accounting because such a requirement, in itself, would not have substantial support. According to SAS 62, a comprehensive basis of accounting other than GAAP would include: Cash basis and modified cash basis Tax basis Prescribed regulatory basis Other basis with substantial support (e.g., price level basis)

installment sale

A transaction in which the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer can postpone reporting such income until future years by paying tax each year only on the proceeds received that year. -- for GAAP: 100% of the profit on an installment sale is recorded at time of sale unless there is doubt as to collectibility.

detachable stock warrants

A warrant (option to buy common stock at a fixed price) that can be "detached" from the related security (a bond) and traded as a separate security for a specified period of time. To account for detachable stock warrants, companies separate debt issued with detachable warrants into debt and equity components, using either the proportional method or the incremental method. The total issuance of $4 million in bonds at 101 has a fair value of $4,040,000 ($4 million × 101 percent). Of the total amount, $200,000 (200,000 warrants × $1 fair value per warrant) is allocated to the warrants, with the remaining $3,840,000 allocated to the bonds.

subsequent event

An event or transaction that occurs after the balance sheet date but prior to the issuance of the financial statements and the auditor's reports that may materially affect the financial statements. It has two categories: 1. recognized subsequent events. 2. nonrecognized subsequent events. Subsequent events that provide information about conditions that occurred after the balance sheet date and did not exist at the balance sheet date are nonrecognized subsequent events. This type of subsequent event is not recognized in the financial statements; but, is disclosed in the notes to the financial statements. Reissuance: When an entity reissues financial statements, the entity should not recognize events (i.e., adjust for events) that occurred between the date the original financial statements were issued or available to be issued (February 23, Year 2) and the date the financial statements were reissued.

selling trade receivable at discount - ordinary annuity

An ordinary annuity is a series of equal payments made at the end of consecutive periods over a fixed length of time. While the payments in an annuity can be made as frequently as every week, in practice, ordinary annuity payments are made monthly, quarterly, semi-annually or annually. -- annual payments = principal amount divided by PVF of ordinary annuity. -- total payment of principal and interest = annual payments times number of periods. -- discounted note = annual payments times PVF factor at discount rate -- total interest revenue over maturity period = total payments - discounted note.

discount on contract with multiple embedded obligations should be treated by

Any discount that exists in a contract (based on the total value of the contract versus the stand-alone value of each obligation summed within the contract) should be allocated proportionally across all obligations within the contract. For example, if there is a contract for $240,000 with two obligations (one valued at $200,000 and the other valued at $100,000), the $60,000 discount will be assigned $40,000 to the first obligation and $20,000 to the second.

government appropriations

Appropriations is the term for authorized (estimated) resource outflows, including expenditures, used when recording the budget. It does not represent actual expenditures. In addition, the word "expense" is associated with accrual accounting. The city, in its general fund, recognizes "expenditures." -- appropriation = approved spending. -- Appropriations is the term for authorized (estimated) resource outflows, including expenditures, used when recording the budget. It does not represent actual expenditures. to record the budget: Dr. estiamted revenue Cr. Appropriations Cr Budgetary control (plug: positive/surplus, if surplus, i.e. estiamted revenue > appropriations.) -- budgetary control: budgetary equity account.

loss from canceling noncancelable purchase commitment contract

Because the contract is noncancelable and there is a minimum guarantee of purchase, there will be a loss resulting from not honoring that guarantee. loss related to canceled purchase commitment = value of TTL minimum guarantee purchase - value of already purchased.

accounts receivable with cosignee

Because these costs are recoverable by Jel (consignee) at the time of sale, Jel should carry accounts receivable from Dale (consignor) until the goods are sold and credit is taken by Jel for the freight costs paid.

amended pension plan

Changes in the funded status of a pension plan due to plan amendment must be reported in other comprehensive income in the period incurred. example: if amending increases prior service cost (PSC), you need to debit OCI and credit pension benefit asset by the increase in PSC.

condemnation award

Condemnation Award means the total condemnation proceeds actually paid by the condemnor as a result of the condemnation of all or any part of the property subject to the Mortgage less the actual costs incurred, including attorneys' fees, in obtaining such award.

current ratio

Current assets divided by current liabilities; -- measures the availability of current assets to pay current liabilities.

estimated revenues (government)

Estimated revenues are credited at fiscal year-end when the estimated revenues and appropriations are closed.

expected loss

Expected losses must be recorded in full when the loss is probable and estimable and not ratably over several quarters.

US public company involved in transaction with foreign subsidiary can most likely find the appropriate guidance in

FASB Accounting Standards Codification. It is the single source of U.S. GAAP. U.S. companies are required to follow U.S. GAAP. It is the most authoritative source of U.S. GAAP. -- The International Financial Reporting Standards cannot be used by a U.S. public company as a source of U.S. GAAP.

under US GAAP, during period of inflation (rise of price), a perpetual system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory valuation methods?

FIFO - yes, LIFO - No.

FOB destination and shipping point

FOB destination: title of good passes (passing of liability) when received by buyer, and that packaging, shipping and handling are costs of the seller. FOB shipping point: Title reverts to the buyer when the seller delivers goods to a common carrier. The buyer should include the goods in his inventory upon shipment.

factors for capital balance

Factors that increase capital: revenue, contributions. Factors that decrease capital: expense, distribution.

Managerial vs. Financial Accounting

Financial: 1. GAAP needs to be used, because financial reporting is for external use. 2. Emphasizes on providing useful information to financial statement users. 3. Also emphasizes relevance. 4. focus on reporting past results. 5. financial reporting is generally more precise. Managerial: 1. GAAP does not need to be used, because it is for internal use. 2. Emphasizes providing timely information to management decision makers. 3. Future focus.

disclosure requirements in financial instruments

Following MUST be disclosed: -- concentration of credit risk: the risk that the other party to the instrument will not perform - must be disclosed in Notes to the Financial statements. -- CV and FV for most financial instruments, when it is practical to estimate FV. Following does not have to be disclosed: -- disclosure of market risk - the risk of loss from changes in market prices - is encouraged, but not required.

total proceeds of bond issue at time of sale: sale in between interest due dates (F5-56)

For discounted bonds: total proceeds at date of sale = bond proceeds after discount + accrued interest since last interest payment.

Subsequent event evaluation period

For filer (an entity that files its financial statements with the SEC) is through the date that its financial statements are issued. (entities that file with SEC are not required to disclose the date through which subsequent events have been evaluated.) For all other entities that does not file with SEC, subsequent event period is through the date that financial statements are "available to be issued." (an entity that DOES NOT FILE with SEC are required to disclose both the date through which subsequent events have been evaluated along with whether that date is the date that the financial statements were issued or the date that the financials statements were "available to be issued.")

form 3

Form 3 is required to be filed by directors, officers, or beneficial owners of a class of equity securities of a registered company and would not contain financial statements. This form contains information regarding the filer's ownership of the entity's securities.

GAAP interest expense

GAAP interest expense = CV at Beg. Of period X periodic interest

adopts general fund budget on modified accrual basis of accounting

If a city legally adopts its annual general fund budget on the modified accrual basis of accounting, its estimated revenues should be reported on the modified accrual basis of accounting in the general fund budgetary comparison schedule. Although the budgetary comparison schedule should appear in the required supplementary information, it may appear in the basic financial statements at the election of the government.

settlement of litigation (recognized subsequent event)

If litigation that arose before the balance sheet date is settled after the balance sheet date but before the date that the financial statements are issued or available to be issued, the settlement amount should be considered when determining the liability to be reported on the balance sheet date. Also, if final settlement is known before FS is issued it should be both disclosed as a "subsequent event" and reported as accruals. -- example: when actual settlement is bigger than estimation: debit. contingency expense and credit contingency liability.

when to record compensation expense for officers

Includes the following: 1. compensation expense paid in the year. 2. salary accrued in the year but not yet paid. 3. bonus paid in the year and paid within two and a half months of the year end. (two and a half month rule)

multi step income statement

Items are listed in order: 1. net sales revenue 2. COGS 3. GP 4. operating expenses 5. income from operations 6. other revenue and gains (nonoperating) 7. other expenses and losses (nonoperating) 8. income from continuing operations before tax 9. income tax expense 10. income from continuing operations 11. gain/loss from disposal of discontinued operations (net of tax) 12. net income

pretax loss on extinguishment of debt: callable bond that is issued at discount.

Loss on call of bonds = call price value - current net CV. call price value = face value of bond * callable rate current net CV = original net CV + total amortization amortizable amount = bond face value - issued bond value + bond issue cost. total amortization = amortization per year * # of years from issue date to call date. amortization per year = amortizable amount / total maturity years. original net CV = issued bond value - issued cost

market value of bond issued at discount or premium, is the present value of two cash flows:

MKT value of bond = PV of principal amount + PV of all future interest payments at MKT rate or interest.

net position (SE and government wide)

Net position is reported in the government wide and proprietary fund balance sheets and represents net equity (the difference between assets plus deferred outflow and liabilities plus deferred inflows.) -- MCQ05764: Govt. wide statements of net position must include a distinction between governmental and business type activities. -- Transactions from the governmental (GRaSPP) funds and usually the internal service funds are displayed as governmental activities, and enterprise funds are displayed as business type activities.

Participating Preferred Stock

Participating preferred stock splits dividend distributions with common stockholders only after the common shareholders have received percentage dividends equivalent to preferred shareholders. The remaining dividend is shared in relation to relative capitalization. relative capitalization % for preferred = dividends paid to preferred before participation / (dividends paid to preferred + dividends paid to common before participation) relative capitalization % for common = dividends paid to common before participation / (dividends paid to preferred + dividends paid to common before participation) undistributed dividends subject to participation paid to preferred = relative capitalization for preferred * undistributed dividends. undistributed dividends subject to participation paid to common = relative capitalization for common * undistributed dividends.

what is disclosed in a summary of significant accounting policies?

Policies: 1. measurement bases used in preparing financial statements. (description of what makes up an account item) 2. specific accounting principles, methods, criteria, and policies used during the period, including. a. basis of consolidation b. depreciation methods c. amortization of intangibles. d. revenue recognition policies/issues (e.g. long-term construction contracts, franchising, leasing operations, etc.) e. and more. More Notes: 1. Disclosure of accounting policies (and all other disclosure also) is an integral part of the financial statements.

Tax-basis financial statements

Prepared on the basis of tax laws and regulations.

recognize donations

RULE: The Statement of Activities shall report gross amounts of revenues and expenses. The cost of premiums given to acknowledge donations is classified as a fund-raising expense. example: Choice "1" is correct. Potterville Charities would display the contribution revenue of $500 gross and display the $15 as fund raising expense. Choice "2" is incorrect. Generally the difference between the fair value of dues or other purchases and the amount transferred is classified as a contribution. When, however, the contributions relate to a major ongoing portion of the operation of the organization, the contribution revenues are displayed gross and the cost of the premium is displayed as fund-raising expense.

contributed asset

Regardless of Bygone Historical Society's policies, no asset or contribution revenue will be recognized since the contributed photos are subject to major uncertainties with regard to their value and have no alternative use.

revenue and taxes receivable current (governmental unit)

Revenues are credited and Property Taxes Receivable are debited when taxpayers are billed for property taxes. Note that the revenues are recorded net of estimated uncollectibles.

revolving debt financing, revolving credit

Revolving credit is a line of credit where the customer pays a commitment fee to a financial institution to borrow money and is then allowed to use the funds when needed.

rental revenue

Rule: For operating leases, a lessor should report rent as income as it becomes receivable according to the provisions of the lease. However, if the rent payments are not received in level amounts, rent revenue is recognized on a straight line basis unless another method is more appropriate (for example, hours of usage for a machine). Year Square ft Rate Total Year 1 10,000 x $12 = $120,000 Year 2 10,000 x $30 = 300,000 Year 3 10,000 x $30 = 300,000 $720,000 Rental revenue recognized 1/1/Year 1-9/30/Year 1: $720,000 ÷ 36 months = $20,000/mo x 9

stock dilution

Stock dilution can also occur when holders of stock options, such as company employees, or holders of other optionable securities exercise their options. When the number of shares outstanding increases, each existing stockholder owns a smaller, or diluted, percentage of the company, making each share less valuable. Stock dilution occurs when a company's action increases the number of outstanding shares and therefore reduces the ownership percentage of existing shareholders. Although it is relatively common for distressed companies to dilute shares, the process has negative implications for a simple reason: A company's shareholders are its owners, and anything that decreases an investor's level of ownership also decreases the value of the investor's holdings.

construction in progress F1: M4

The account Construction Work-in-Progress will have a debit balance and will be reported on the balance sheet as part of a company's Property, Plant and Equipment. The costs of a constructed asset are accumulated in the account Construction Work-in-Progress until the asset is placed into service. 1. CIP sort of equivalent to inventory.

DIFFERENCE BETWEEN PREPAID EXPENSE AND DEFERRED EXPENSE

The deferred expense is a prepaid expense that you use over a year after you make the payment. It is usually mentioned as a long-term asset on the yearly balance sheet. On the other hand, a prepaid expense is something that you use up within a year.

Accumulated Depreciation

The sum of all the depreciation expense recorded to date for a depreciable asset.1. = ((depreciable cost - salvage value) / remaining useful life ) * years elapsed (when useful life does not change.)

fair value hedge

The use of a derivative to offset the exposure to changes in the fair value of a recognized asset or liability or of an unrecognized commitment, that are attributable to a particular risk. -- fair value hedges gains and losses are recorded on income statement.

objective of financial reporting

To provide information that is useful for economic decision making for primary users. This information will help the users make decisions about providing resources to the reporting entity.

compensation expense of restricted shares issued

Total compensation cost = market price of the share on granted date * # of restricted shares awarded. -- total compensation is allocated to compensation expense on a straight line basis over the time period in which the employee must provide service.

transaction costs

Transaction costs are the costs incurred during trading - the process of selling and purchasing - on top of the price of the product that is changing hands. Examples: 1. legal fees 2. communication charges 3. cost of finding price 4. online credit card usage fee (convenience fee)

Methods of accounting for treasury stock

Two methods of accounting for treasury stock are permitted: 1. cost method 2. legal (pr par/state value) method (Used by entities approximately 95% of the time)

impairment loss calculation

Under U.S. GAAP, impairment analysis begins with a test for recoverability in which the net carrying value of the asset is compared to the undiscounted cash flows expected from the asset. If the net carrying value exceeds the undiscounted cash flows, then an impairment loss is recorded equal to the difference between the carrying value and fair value of the asset. If NCV < UFNCF, then there is no impairment loss. -- impairment loss = carrying value - recoverable amount - revaluation surplus. -- impairment loss goes on the income statement.

other gains and losses (operating) items

Usually the following items should be included into other gains/losses (operating): 1. gain on extinguishment of debt 2. loss due to earthquake damage 3. unrealized gain on equity securities (unrealized holding gains/losses on equity securities are included in earnings as they occur.)

declaration of cash dividend

When a corporation's board of directors declares a cash dividend on its stock, the following will occur: Retained earnings (a part of stockholders' equity) will decrease. Current liabilities (such as Dividends Payable) will increase.

deferred payment contract

Whenever assets are purchased requiring fixed payments extending beyond one year, the assets should be valued at the present value of all future payments.

just in time inventory system

a system designed to ensure that materials or supplies arrive at a facility just when they are needed so that storage and holding costs are minimized.

additions and subtractions to pension plan's statement of changes in net assets available for benefits.

additions: dividends and interest received, contributions received from employers and employees, increase in investment fair value. subtractions: admin expenses, investment purchases.

salaries treated as advance against commission means

advance means payment towards commission. so salaries will be payment towards commission and salaries paid lowers accrued commission.

How should plan investments be reported in a defined benefit plan's financial statements? a. at cost b. at fair value c. at actuarial present value d. at net realizable value

b. at fair value

COGS

beginning inventory + purchases - ending inventory plus ending AP if it only relates to inventory.

net investment in capital assets

calculated as the value of net capital assets less any outstanding debt related to capital asset acquisitions or construction.

current assets

cash and other assets expected to be exchanged for cash or consumed within a year. 1. includes: cash, A/R, allowance for doubtful account, merchandise, investment in trading securities, inventory, prepaid expenses, land held for resale.

claims and expenditures for current period

claims and expenditures = claims paid + increase in current liability

inventory turnover

cost of goods sold/average inventory. - shows how many times a company has sold and replaced inventory during a given period.

XBRL

eXtensible Business Reporting Language is a royalty free, open specification for software that uses XML (eXtensible Markup Language) data tags to describe financial information for business and financial reporting. XBRL is next generation language after HTML. HTML tells computers how to display text. XML and XBRL tells computers how to interpret the context of the text.

A/R net

equals = A/R - AFDA

accrual to cash operating expenses

equals accrued expense + increase in prepaid expense - decrease in prepaid expense - increase in accrued liabilities + decrease in accrued liabilities.

year end amount for accrued expense equals

equals beg bal plus new expense minus expense paid.

accrued expenses, accruable

examples of accruable and deferable expenses: 1. advertising costs

fundraising expenses

examples: 1. maintaining donor list

administrative collection function expenses (NFP)

examples: 1. soliciting membership dues

total loss on extinguishment of debt

extinguishment of debt: it can happen at maturity when face value of bond is paid off or it can be paid off before maturity. (early extinguishment of debt) total loss on extinguishment of debt before maturity = reacquisition price - net CV. net CV = Face value of bond + unamortized premium - unamortized discount - unamortized bond issuance cost pro rata unamortized bond issuance cost = (retired debt / total debt) * unamortized bond issuance cost. -- reacquisition price = debt retired + retired derivatives = amount paid to retire debt

Accelerated Filer

is an issuer: - with a public float of greater than or equal to $75 million but less than $700 million. - subject to the Securities Exchange Act's reporting requirements for greater than or equal to 12 months - that previously filed at least 1 report. - which is not eligible to file quarterly and annual reports on Forms 10-QSB and 10-KSB. - accelerated filers have max of 75 days after company's fiscal year end to file Form 10-K with SEC.

historical cost

is the amount paid by a company to acquire an asset. It is used if operations were continuing.

comprehensive income

is the change in equity of a business during a period from transactions and other events and circumstances from non owner sources. It includes all changes in equity except those resulting from investments by owners and distributions to owners SFAC 6 para 70. 2. includes loss on discontinued operations. 3. equals net income + OCI. 4. it can be combined with income statement or make separate comprehensive income statement. 5. related tax effects for components must be disclosed. 6. would not include investments by stockholders nor distributions or dividends to stockholders.

Fair value of nonfinancial/physical asset

is the value at its highest and best use.

recorded means

it is already included in the financial statements

changes in value of speculative derivatives are reported in

net income. i.e. current earnings as unrealized gain/loss.

net profit margin

net income/net sales. -- if you sell inventory at cost, then net income stay same but sales increase therefore it would decrease net profit margin. tip: blank margin means blank divided by net sales.

measurement focus entries: government fund to government wide financials

net position has a normal credit balance.

gross profit equals

net sales minus cost of goods sold

when to record expense

record expense when service or good is received/used. When it is billed does not matter. when expense are prepaid, it does not affect income statement until good or service is received.

restricted fund (gov't)

restricted fund balances represent resources whose use has been limited by external sources such as creditors (e.g. debt covenants), contributors, other governments, laws, constitutional provisions, or enabling legislation.

net income consists of

revenue, expenses, income from continuing operations and discontinued operations. includes following: 1. gains from extinguishment of debt. 2. unrealized loss on trading security 3. revaluation loss 4. realized gains from sale of held to maturity securities.excludes the following:1. OCI items.

sales in consolidated income statement

sales in consolidated income statement = intracompany billings. -- Rule: All intercompany billings are eliminated in consolidation.

when a NFP receives money from a donor that specifies who the beneficiary is and the NFP has no variance power (the unilateral authority to redirect assets to another beneficiary)

then the NFP will report the money received as a refundable advance liability. Dr. asset and Cr. refundable advance liability.

total debt ratio

total liabilities/total assets

noncash investing and financing activities

transactions that do not have direct cash flow effects; they are reported as a supplement to the statement of cash flows in narrative or schedule form. -- following needs to be separately provided in a supplemental disclosure: 1. purchase of fixed assets by issuance of stock. (amount reported would be fair value of stocks given up = # of shares * FMV/share) 2. conversion of debt to equity 3. acquiring assets through inucrrence of capital ease obligations 4. exchange of noncash asset for another noncash asset.

arrears

unpaid or overdue debts; an unfinished duty

noncurrent assets

Includes: long-term investments, plant assets, intangible assets, bond sinking fund. Takes longer than a year to realize its full value. 1. an asset is expected to result in the realization of cash in the future.

how should a change in accounting estimate be accounted for?

1a. A change in accounting estimate is an adjustment of the carrying amount of an asset or liability, or related expense, resulting from reassessing the expected future benefits and obligations associated with the asset or liability. 1b. a change in accounting estimate affects only the current and subsequent (future) periods, if the change affects both, it does not affect prior periods nor retained earnings. 1c. change in estimate will be reported in income/loss from continuing operations. 2. handled prospectively. Make correcting transactions in the year after change in estimate. Use proper items related to the change in estimate. 3. Happens when you obtain new information and can make better quality financial reports. better matching principle. 4. Examples: change in depreciation method,

According to FASB and IASB conceptual frameworks, primary users of financial reports include:

1. investors, lenders, creditors.

percentage of accounts receivable (estimates allowance for doubtful accounts)

CY ending AFDA = CY ending AR bal. * % of of AR.

combined into single performance obligation vs. split into distinct component obligation.

Combined into single performance if: 1. services are all very similar 2. can be provided to buyer in a similar manner. split into distinct component: 1. buyer can benefit from each service independently or in conjunction with her own available resources. 2. promise to deliver each service is separately identifiable from other services.

Enhancing Qualitative Characteristics

Comparability, verifiability, timeliness, and understandability, these items enhance the usefulness of information that is relevant and faithfully represented.

selling expense

Expenses that are incurred directly in the selling of merchandise. 1. sales salaries and commissions paid 2. freight out. (Note: freight-in is part of COGS.) 3. advertising 4. rent for office space for part used for sales department.

general and administrative expenses

Expenses that support the operating activities of a business. 1. legal and audit fees. 2. rent for administrative departments: i.e. accounting, legal and audit. 3. insurance 4. officer's salaries 5. note: interest expense goes on "other expense"

LIFO inventory

Most recent items added to inventory are sold first. (purchased inventory is counted as sold first before beg. balance of inventory)

Component of faithful representation

Neutrality, complete, free from error

Accounting Standards Updates

The FASB amends the Accounting Standards Codification through updates. (for new US GAAP issued by the FASB and for any changes to existing GAAP.) An Accounting Standards Update is issued only after a majority vote of the members of the FASB.

depreciation expense are accrued?

True. 1. it goes on SGA expense. when calculating depreciation expense for an asset during the year the asset is sold/disposed, the month of sale/disposal should be counted. i.e. if asset is held from Jan. 1 and sold on Sept. 15, you would multiply annual depreciation times (9/12). But when you buy a new asset, depreciation starts after the purchase month. -- for replaced part of a fixed asset, the useful life equals the remaining life of the asset being fixed. -- there is no depreciation on maintenance agreement because it is not a fixed asset.

accrued interest receivable

-- accrued interest receivable = face value of loan * effective interest rate * (m/12).

accrual based financial statements

- revenue recognized when earned and expense recognized when incurred. - expenses matched to related revenues.

Regulation S-K (SEC-knon financial)

- sets forth non-financial reporting requirements for various SEC filing used by public companies.

Regulation S-T (SEC-elecTronic filings)

- sets forth rules governing electronic filings

Regulation S-B (SEC - business issuers)

- sets forth the disclosure requirements for small business issuers.

PPE (property plant equipment)

-- accumulated depreciation amount should be presented separately, reducing the historical cost of the equipment to net book value.

taxable income (cash to accrual basis)

-- add income and subtract loss from adjusted entries for accrual basis to pretax income.

debt service fund

-- debt service fund services general debt. -- both fiduciary and proprietary funds record their own long term liabilities and service their own debt.

total interest revenue from note receivable

-- after purchasing a note, the total interest revenue over the life of the note = total cash to be received at maturity - PV of note at purchase.

Regulation S-X (SEC financials)

- sets forth the form and content of and requirements for interim and annual financial statements to be filed with the SEC. -- Interim financial statements filed with the SEC would not include a statement of cash flows for the most recent fiscal quarter, but should include statements of cash flows for the period between the end of the preceding fiscal year and the end of the most recent fiscal quarter, and for the corresponding period for the preceding fiscal year. The financial statements may also present statements of cash flows for the cumulative 12 month period ended during the most recent fiscal quarter and for the corresponding preceding period.

tax basis vs book basis income

- tax basis income recognize revenues and expenses in different reporting periods. - for income tax basis financial statements, the nondeductible portion of expenses should be included in the expense category (not a separate category) in the determination of income. - decrease in AR represents cash received in the current period on AR from prior periods. Therefore cash basis in the current period is that much higher than accrual basis income. (vice versa). - Under Accrual, increase in AP represents expenses incurred but not yet paid. Therefore, cash basis in current period is that much higher than accrual basis income. (vice versa).

Financial statements are considered to be "issued" when:

(1) the financial statements are in a form and format that comply with GAAP and (2) by which the financial statements have been widely distributed to financial statement users.

Per IFRS 1 (first time adoption of International Financial Reporting Standards), an entity's financial statements should include at least:

- 3 balance sheets (statement of financial position) - 2 statements of comprehensive income - 2 separate income statements - 2 statements of cash flows, - 2 statements of changes in equity, and - related notes, including comparative information

Under IFRS, what is disclosed for an entity's reportable segment.

- Disclosed for each segment: assets, liabilities, profit and loss. Need to be reported for US GAAP except for liabilities. - Segment cash flow is not reported under IFRS nor US GAAP.

interim financial statements

- Financial statements covering periods of less than one year; usually based on one-, three-, or six-month periods. - An enterprise preparing interim statements for the current year should use the same accounting principle followed in preparing its latest annual financial statements, unless a change in accounting principle is adopted in the CY. (GAAP).

equity securities

- Securities issued by corporations as a form of ownership in the business. (e.g. common stock) - equity securities are generally reported at fair value through net income. Unrealized gain/loss on equity securities are included in earnings as they occur.

Reporting income for interim/quarter

- The entire amount of a gain or loss from sale of fixed assets should be reported during the period incurred. - Expenses that benefit more than one interim period, such as property tax, are allocated among the periods benefited. Include - A cumulative effect type accounting change is not included in the net income of the period/quarter of change. Instead, the BOY RE is restated.

XBRL financial statements

- XBRL financial statement exhibit is required to be submitted with a filer's 10-K, 20-F, or 6-K because these filings include the filer's financial statements. - Forms 3, 4, and 5 are required to be filed by directors, officers, or beneficial owners of more than 10% of a class of equity securities of a registered company. These forms do not contain the registered company's financial statements because they are not filed by the company, and therefore are not required to present the company's financial statements in an exhibit prepared using XBRL.

statement of financial position

- an accrual basis financial statement prepared by a non-for-profit organization. i.e. balance sheet. -- purpose: provides information about assets, liabilities, and net assets and relation between them at given point in time. similar to commercial balance sheet.

Form 20-F

- annual report of non-US registrants registered with SEC and must contain audited financial statements.

small filer

- has worldwide market value of outstanding common equity held by nonaffiliates of less than $75 million.

10-Q

- reports quarterly results of operations and financial condition of a registrant. - filed every 3 months. - filed within 40 days for large corporations and 45 days for small corporations after the end of the first 3 quarters of each fiscal year. It must contain reviews of interim financial information by an independent CPA. Contains unaudited financial statements.

10-K submission requirements

- requires US public company submitting 10-K to present financial statements: balance sheets, comprehensive income, footnotes, applicable FS schedules, summary of significant accounting policies, in an exhibit prepared using XBRL. - Management's discussion and analysis is NOT required.

when a company receives donation of its own stock from a stockholder, by what amount would the donation cause total stockholders' equity to decrease?

-- $0 decrease in total stockholders' equity due to donation of its own stock from a stockholder because there is no cost to the corporation. The entry would be: Dr. Donated treasury stock (@ FMV) $ xx Cr. APIC (@ FMV) $xx Both accounts enter into total stockholders' equity; therefore, there is no change in total stockholders' equity. When (if) shares are reissued, the entry would be: Dr. Cash (@ sales price) Dr. APIC (for sp < carrying value) Cr. Donated treasury stock (@ carrying value) Cr. APIC (for sp > carrying value)

to account for building being damaged and uninsured.

-- 1. capitalize the cost of refurbishing. The refurbishing costs create a new asset (the reconstructed building) and must be capitalized. -- 2. record/recognize a loss in the current period to the carrying amount of the damaged portion of the building.

callable/redeemable bond

-- A callable bond is a bond that the issuer may redeem before it reaches the stated maturity date. In essence, a callable bond allows the issuing company to pay off their debt early. A business may choose to call their bond if market interest rates move in a favorable direction and will allow them to borrow at a more beneficial rate.

impairment testing and impairment loss

-- A company will perform impairment analysis and record necessary entries on all assets of the company prior to performing impairment analysis related to goodwill. -- Reporting units (segments) will be separately tested for impairment analysis. -- If the FV of a reporting unit is less than the CV, the impairment is assumed to be due to the goodwill as all other assets of the reporting unit would already have been properly adjusted.

consolidated balance sheet

-- A consolidated balance sheet presents the financial position of an affiliated group of companies. The result is a balance sheet that shows the assets, liabilities, and equity of the group as though they were a single firm. This document is usually presented as part of a complete set of consolidated financial statements. When a consolidated balance sheet is prepared, inter-company transactions are removed to keep from inflating any accounts through double counting. -- consolidated balance sheet includes 100% of the parent's and sub's assets and liabilities (after eliminating intercompany transactions), but does not include the sub's equity. Noncontrolling interest is presented as part of equity, separately from the equity of the parent co. -- intercompany transactions from subs that are 50% or more owned by parent must be eliminated.

Impaired loan - how to measure impairment of loan

-- A loan is impaired when it is probable that a creditor will be unable to collect all amounts due (including both principal and interest) according to the contractual terms of the loan agreement. -- When a loan is impaired and foreclosure is not probable, the creditor should measure impairment based on the PV of expected future cash flows discounted at the loan's effective interest rate. However, as a practical expedient, the creditor may measure impairment based on, (1) a loan's observable market price, or (2) the Fair value of the collateral if the loan is collateral dependent. If foreclosure of a loan is probable, impairment must be measured based on the fair value of the collateral.

short term to long term debt with refinancing

-- A short term obligation may be excluded from current liabilities and be included in non-current debt if the company has BOTH the intent AND ability to refinance debt on a long term basis as evidenced by an actual refinancing before the issuance of the financial statements, or by the existence of a noncancelable financing agreement from a lender with the financial resources to accomplish the refinancing. -- amount of short term liabilities that are paid off before refinancing to long term is not part of long term payable but part of short term. -- you can refinance with long term debt or stocks. -- The credit is to long-term liability rather than common stock because Footnote 2 of SFAS No 6, Classification of Short-Term Obligations Expected to Be Refinanced, states "if equity securities have been issued [after the balance sheet date but before the balance sheet is issued], the short-term obligation, although excluded from current liabilities, shall not be included in owners' equity."

Shipping FOB destination and FOB point and accounts payable

-- AP is only affected when ownership/title of goods purchased by customer goes to the customer. -- For shipping FOB destination, it is when customer receives the good from the common carrier. -- for shipping FOB shipping point it is when goods are received by the delivery vehicle.

when stockholder exercise warrants to purchase stock for more than par value

-- APIC increases by amount purchase price in excess of par during the year when warrants are exercised and there is no effect on net income.

Factoring Accounts Receivable

-- Accounts receivable factoring, also known as factoring, is a financial transaction in which a company sells its accounts receivable to a financing company that specializes in buying receivables (called a factor) at a discount. -- AR SALE WITHOUT RECOURSE: if sale is nonrecourse, it means that the sale is final and that the assignee i.e. the factor or buyer of AR, assumes the risk of any losses on the collections. If the buyer is unable to collect all of the AR, it has no recourse against the seller. -- SALE WITHOUT RECOURSE IS CONSIDERED A SALE AND NOT A LOAN. -- AR SALE WITH RECOURSE: the factor/buyer has option to re-sell any uncollectible receivables back to the seller. -- with recourse, two treatments are possible. The transfer may be considered a sale or a borrowing with AR as mere collateral. -- in order to be considered a sale, the transfer must meet 3 conditions: 1. the transferor's (seller's) obligation on uncollectible accounts can reasonably be estimated. 2. the transferor surrenders control of the future economic benefits of the receivables to the buyer. 3. the transferor cannot be required to repurchase the receivables, but may be required to replace the receivables with other similar receivables. (if any of the above conditions are not met, the transfer is treated as a loan.)

donation received to fund its ongoing programming

-- Donor imposed restrictions that are met in the same period they are received may be recorded as support (contribution revenue) without donor restrictions, provided that the organization discloses and consistently applies this accounting policy. -- otherwise, donor-restricted may be displayed purely as support without donor restrictions. -- NFPs that receive donations from an entity that have variance power over its receipts as granted by its donors should not record contributions received.

sold inventory that is not yet paid for (cash to accrual)

-- debit cost of sales and credit A/P

Accretion and depreciation expense

-- Accretion expense is the increase in the ARO liability due to the passage of time calculated using the appropriate accretion rate. The accretion expense is added to the ARO liability each period. At the end of the accretion period, the ARO liability reported on the balance sheet should be approximately equal to the ARO to be paid. Accretion expense related to ARO = Beg. ARO * Risk adjusted rate. -- Journal entry to record accretion expense associated with the ARO (liability): Dr. Accretion expense Cr. Asset Retirement Obligation (liability) -- Depreciation expense decreases the (Asset Retirement Cost) ARC asset reported on the balance sheet. At the end of the accretion period, the ARC should be fully depreciated. Accretion expense is the ongoing, scheduled recognition of an expense related to a long-term liability. The amount charged to expense represents the change in the remaining discounted cash flows of the liability. The concept is most commonly applied to asset retirement obligations, which usually extend for many years into the future, and so are measured using a discounted cash flows analysis.

EPS on income statement

-- All public entities must present earnings per share on the face of the income statement. -- In simple capital structure, basic EPS for income from continuing operations and net income are presented. -- In complex capital structure, basic and diluted EPS must be presented for income from continuing operations and net income.

allocating issue proceeds when common stock and preferred stock is sold as lump sum.

-- Allocate "issue proceeds" of a basket purchase or sale of convertible stock based on relative market values.

Asset Retirement Obligation

-- An Asset Retirement Obligation (ARO) is a legal obligation associated with the retirement of a tangible long-lived asset that results from the acquisition, construction or development, and/or normal operation of a long lived asset (PP&E), except for certain lease obligations (minimum lease payment and contingent rentals). An asset retirement obligation (ARO) is on the books initially as both an asset and a liability at present values. Each period, depreciation expense is booked to decrease the asset and accretion expense is booked to increase the liability such that when the ARO must be satisfied, there is no asset on the books anymore and the liability is represented at current costs. Ending ARO liability = Beginning ARO + PV of new ARO + Accretion expense − ARO settled during the period -- total ARO expense = depreciation expense + accretion expense. -- depreciation expense = ARO / # of years until all ARO is paid. accretion expense = ARO * accretion rate. -- The asset retirement cost is usually depreciated using straight-line depreciation. -- Accretion expense is recorded as the asset retirement obligation increases over time. accretion rate is usually given. -- An ARO qualifies for recognition when it meets the definition of a liability: - duty or responsibility - little or no discretion to avoid - obligation event (uncertainty about whether performance will be required does not defer the recognition of a retirement obligation; rather, that uncertainty is factored into the measurement of the FV of the liability through assignment of probabilities to cash flows.) -- the reported liability is the present value of future obligation. i.e. discounted value should be recorded. -- No expense is recognized initially (unless actual is different than estiamted dismantle cost), and depreciation expense will be recorded over the life of the asset. -- Example: ABC Co. purchased an oil tanker and expected to operate for 5 years at which it's legally required to dismantle the depot and remove tank which was estimated to cost 10,000, but the actual cost came to be 15,000. ARO must be recognized at the time of purchase of tanker to reflect the legal obligation to dismantle. The ARO would be recorded at present value of expected obligation. Dr. Asset Retirement cost (asset) 150,000 Cr. Asset Retirement obligation (liability) 150,000 When it is time to pay: Dr. ARO liability 150,000 Dr. demolition expense 5,000 Cr. cash/AP 155,000. -- When an ARO exists, the entity should record an ARC which increases the CV of the long-lived asset as an ARO, which is the liability recorded on the balance sheet related to the retirement. The amount recorded to both the asset and liability will be equal to the FV of the ARO (which is determined by discounting the future cash flows required). The ARC will be depreciated over the useful life of the related asset while the ARO will be "accreted" based on the relevant accretion rate.

attribution period

-- Attribution period is the period of an employee's service to which the expected postretirement benefit obligation for that employee is assigned. Generally, the beginning of the period is the employee's date of hire (unless the plan's benefit formula grants credit only for service from a later date, in which case the beginning of the attribution period is generally the beginning of that credited service period.) The end of the "attribution period" is the "full eligibility date." -- The period of time over which the postretirement benefit cost accrues.

Bonds or notes due within one year

-- Bonds or notes due within one year are shown as "noncurrent" if the issuer has the intent AND ability to refinance with a new issuance of long term debt. This intent and ability must usually be demonstrated through refinancing of the debt after the balance sheet date, but before the issuance of the financial statements. Separate disclosure of the refinancing is required.

defined benefit pension plans and defined contribution pension plans

-- Both defined benefit pension plans and defined contribution plans require the preparation of Statement of Net Assets Available for Benefits and Statement of Changes in Net Assets Available for Benefits. -- In addition, defined benefit pension plans (but not defined contribution pension plans) are also required to prepare Statement of Accumulated Plan Benefits and Statement of Changes in Accumulated Plan Benefits. -- For both, the preparation of Statement of Cash Flows is optional, but not required. -- There is no pension plan financial statement called a "Statement of Net Funded Status".

group vs composite depreciation

-- Both group and composite depreciation are based on the straight line depreciation method. The group method is for similar assets white the composite method is for a collection of dissimilar assets.

weighted average or just average method of price for inventory and COGS

-- COGS with average method = number of units sold times weighted avg price. -- weighted avg. price = value of inventory at hand divided by units of inventory.

approximate most closely the current cost for COGS and Ending inventory

-- COGS: LIFO most closely approximates the current cost of COGS because inventory "last-in" (most recently purchased) is "first-out" expressed currently). -- Ending Inventory: FIFO most closely approximates CURRENT COST for EI because inventory "first-in" (oldest purchases) is "first-out" (expensed currently) and the most recent purchases remain in EI.

dividends paid

-- Cash dividends are a distribution of a company's profits. -- dividends are not reported as a liability until the dividends are declared. Dividends not declared are reported as a disclosure. -- Dividends that were declared but not yet paid are reported on the balance sheet under the heading current liabilities. -- Dividends on common stock are not reported on the income statement since they are not expenses. However, dividends on preferred stock will appear on the income statement as a subtraction from net income in order to report the earnings available for common stock.

derivatives

-- Derivatives includes futures, forwards, options and swaps. A derivative is a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets—a benchmark. The derivative itself is a contract between two or more parties, and the derivative derives its price from fluctuations in the underlying asset. The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indexes. These assets are commonly purchased through brokerages. -- derivative is a contract that has its settlement value tied to an underlying notional amount.

allowance method of recognizing uncollectible accounts (journal entry)

-- Dr. AFDA and Cr. A/R -- it has no effect on net income -- AFDA has a normal credit balance. It is a contra asset account that is netted against A/R. -- entries at time of collection of amount previously written off: Dr. Cash Cr. AFDA. (No affect on net income.) -- PROVISION OF AFDA: does not take into account the beginning balance of AFDA. The provision increases the AFDA and bad debt by same amount. -- the allowance method is used to match expenses with revenues and to record the proper carrying amount for A/R. The direct write off method does not achieve these objectives.

cost of equipment balance with noninterest bearing note payable and cash

-- Dr. equipment, Dr. discount on NP, Cr. NP, Cr. Cash

stamp service and cost of redemption liability

-- EOY liability for stamp redemption = BOY liability + (%of redemption * CY max redemption cost) - CY cost of redemption.

EOY note payable

-- EOY note payable = BOY NP + CY NP - NP payments. -- if NP requires to be paid as an annuity, subtract CY payments and calculate PV of annuity of the remaining payments. -- when payments are made quarterly or periodically, it includes principal and interest. And the NP balance is only affected by the principal portion.

consolidating accounting vs equity method

-- Equity method is used when ownership is between 20-50% or if significant influence can be exercised by the investor over the investee. If over 50% control is present, consolidated financial statements should be prepared unless control is temporary or significant doubt exists regarding the parent's ability to control the subsidiary.

net value of investment, equity securities

-- Equity securities are marked to fair value at the financial statement date. -- value of stocks invested at year end = # of shares held * market value per share at year end.

How are expenses recorded in statement of activity (IS) for NFP

-- Expenses are reported as decreases in net assets without donor restrictions. -- No expenses are recorded to reduce net assets with donor restrictions. -- examples of expenses: 1. grants to other organizations 2. depreciation

uncollectible accounts expense (aka. bad debt expense) for direct write off method, allowance method

-- FOR DIRECT WRITE OFF: the account is written off (AR decreases) and bad debt is recognized when the AR becomes uncollectible. -- FOR ALLOWANCE METHOD: based on past experience. A percentage of each period's sales or ending AR is estimated to be uncollectible. The provision (estimated) of bad debt is charged to bad debts for the CY (period) and AFDA is credited. When a specific amount of AR is determined to be uncollectible, you Dr. AFDA and Cr. AR. (uncollectible accounts expense is only affected by the provision of uncollectible accounts expense i.e. not affected by AR written off.) -- there are three GAAP methods for estimating uncollectible or doubtful accounts under allowance method: 1. percentage of sales 2. percentage of AR at year end 3. Aging of Receivables

Finance lease criteria under US GAAP

-- For a lessee to account for a lease as a finance lease under US GAAP, the terms of the lease must meet at least one of the finance lease criteria: (OWNES) 1. ownership transfers at the end of the lease 2. written purchase option the lessee is reasonably certain to exercise. 3. PV of minimum lease payments is at least 90% or more of Fair value of asset (approximately 90% of FV of leased property.) 4. Lease term = major part, 75% or more of asset useful life. 5. Asset is specialized such that it has no alternative use to the lessor. lease liability to record at beginning of lease term = annual rental payable at beg. of each year * PV of annuity over lease term. journal entries: entering into the lease: (record lease liability) Dr. ROU Asset, Cr. Lease Liability. (initial lease liability = PV of minimum lease payments = periodic payments * PV annuity factor for lease term and interest rate implicit in the lease.) Making lease payment at year end: Dr. interest expense, Dr. lease liability, Cr. Cash (periodic cash payment is given, interest expense = current lease liability * interest rate implicit in the lease, and remainder is debited as lease liability, paying off the principal) Record other expenses related to the lease: (record amortization of ROU asset): Dr. amortization expense, Cr. Accum. Amort. - ROU Asset. amortization expense = ROU Asset / useful life of asset.

Component Method of Depreciation

-- For each part of an item of PPE, if cost is significant in relation to total cost AND useful life is different THEN, that cost of item should be depreciated separately.

how cash flow is affected by operations for finance leases

-- For finance leases, any variable lease payments and short term lease payments not included in the lease liability are classified as cash outflows from operations. -- For finance leases, the principal portion of the lease payments is a cash outflow from financing -- and the interest portion of the lease payments is cash outflow from operations.

Accrued Rent Receivable

-- For operating leases, a lessor should report rent as "income" as it becomes receivable according to the provisions of the lease. However, if the rent payments are not received in level amounts, rent revenue is recognized on a straight line basis unless another method is more appropriate (for example hours of usage for a machine). When rent payments received are not proportionate amounts: -- accrued rent receivable = revenue recognized - rent payments received.

return on plan assets (component of pension cost)

-- GAAP allows the use of actual or expected return on plan assets. -- most companies use expected return on plan assets in order to smooth earnings. In the exam use expected return provided unless the problem indicates to use the actual return. actual return on plan assets = ending plan assets - beg plan assets - contributions + benefits paid

interest expense from notes payable

-- GAAP does not allow straight line interest recognition. The interest must be calculated using the effective interest method.

sales-leaseback

-- GAAP requires that a loss to be recognized immediately in a sales-leaseback transaction when the Fair value of the property at the time of the sale-leaseback is less than book value. -- if the underlying lease in a sale-leaseback is a finance lease, it is considered equivalent to a repurchase and will therefore be considered a "failed sale."

Start up and organization costs

-- GAAP requires that start up costs, including organizational costs be expensed as incurred, without exception.

borrowings not tied to specific construction of asset: calculate capitalized interest rate

-- If borrowings are not tied to specifically to the construction of an asset, the weighted average interest rate for the other borrowing of the company should be used. -- Example of weighted average interest rate (WAIR) calc: during entire year you have outstanding debt of $6,000,000 face value at 8% interest rate, and $8,000,000 face value at 9% interest rate. Then the WAIR = [(6,000,000/14,000,000)*.08] + [(8,000,000/14,000,000)*.09] = .0857 or 8.57% -- NOTE: if there were borrowings tied to a specific construction, then the rate on those borrowings would be used.

During what period should the stock split or stock dividend be considered.

-- If stock dividend or a stock split (or reverse split) changes common stock outstanding, the computation of EPS shall give retroactive recognition for all periods presented using the new number of shares because the reader's primary interest is presumed to be related to current capitalization.

if transaction is denominated in US dollars, will there be a gain/loss?

-- If transaction is denominated in US dollars, then there is no foreign exchange gain/loss.

Land Improvements

-- Improvements to land such as paving, lighting, and landscaping that, unlike land itself, are subject to depreciation. -- examples: --- installation of sewage system

revenue recognition criteria: voluntary non-exchange transaction

-- In addition to being measurable and available (two criteria automatically satisfied by collecting multiyear grant monies in advance), voluntary non-exchange revenues (e.g. grants) are recognized when both time and eligibility requirements are met. -- amounts that meet the eligibility requirement but not the time requirement will be accounted for as a deferred inflow. -- balance of advanced receipt (amount that neither meets time and eligibility requirement) is a liability that would be repaid to the grantor if the eligibility requirements were not met by the end of grant period.

Cost of buildings

-- Includes all expenditures related directly to acquisition or construction Costs include: -Materials, labor, and overhead costs incurred during construction -Professional fees and building permits -- architect's fees

bond indenture

-- Indenture refers to a legal and binding agreement, contract, or document between two or more parties. -- Between bond issuers and bondholders, an indenture is a legal and binding contract specifying all the important features of a bond, such as its maturity date, the timing of interest payments, method of interest calculation and callable or convertible features, if applicable.

Leasehold improvements - amortize

-- Leasehold improvements should be amortized straight line over the lesser of the remaining life of the lease or the life of improvement. -- lease improvements: - installation of new walls and offices. -- if it is uncertain that lease will be renewed, it will not be a factor.

contribution of art work

-- NFP does not need to recognize contribution of art work, historical treasures and similar assets if the donated items are added to collections that meet all of the following conditions: 1. are held for public exhibition, education or research in furtherance of public service rather than financial gain. 2. are protected, kept unencumbered, and preserved. 3. are subject to an organizational policy that requires the proceeds from sale of collection items to be used to acquire other items for collections.

what happens when existing shareholders gain right without consideration (monetary value) to purchase unissued common stock for an amount in excess of par value?

-- No entry is made when rights are issued since no consideration is given. -- if the rights are exercised and stock is issued, then common stock and additional paid in capital increases.

When computing diluted EPS do you recognize dilutive and anti-dilutive convertible securities?

-- No, convertible securities are recognized in Diluted EPS only if the conversion is dilutive.

Note payable net of current portion

-- Note payable net of current portion = NP - current portion of NP. -- if NP requires to be paid as an annuity, subtract CY payments and calculate PV of annuity of the remaining payments to get NP net of current portion. -- correct presentation of NP is to show face amount, less discount on liability itself at imputed interest rate.

date of grant (stock compensation)

-- Per SFAS 123 (ASC 718-20), equity instruments issued for employee services are to be valued at the date of grant.

governmental fund

-- Revenues are recognized when measurable and available. Revenues are accrued when earned. Revenues must not only be earned but also collected (generally) within 60 days of year end for recognition in governmental fund financial statements. (i.e. states and local governmental body is not susceptible to accrual.

Partners' contributions

-- Rule: assets contributed by partners to a partnership are valued at FMV of assets, net of any related liabilities. -- Rule: upon formation of partnership, tangible assets (inventory, real estate) would be recorded at FMV at date of investment. -- The partners' capital account balances equal the FMV of assets contributed less liabilities assumed by the partnership.

current maturity of long term debt

-- Rule: current maturities of long term debt in the balance sheet should include amounts due and payable within 12 months of the balance sheet date. -- does not include interest receivable. -- sinking fund requirement would be disclosed in a footnote but is not included in current maturity of long term debt.

consolidation accounting - consolidated financial reports

-- Rule: in a vertical chain, if parent co. owns more than 50% of sub co. and sub co. owns more than 50% of third co., then consolidate: 1. third co. into sub co. 2. sub co. (now consolidated with third co.) into parent co. -- in consolidation, parent's and sub's assets and liabilities are added together. -- sub's net assets is adjusted to fair value. -- consolidated SE = parent's SE. -- consolidated net assets = parent co.'s BV net assets + sub co.'s FV net assets

balance sheet accounts are generally included at current exchange rate, except for

-- a self contained subsidiary with a 3 year inflation rate of 100% or more (hyperinflationary economy) OR -- a foreign entity does not maintain its accounts in foreign functional currency. -- balance sheet accounts carried at cost.

interest incurred for PP&E for own use VS held for sale

-- Rule: interest costs DURING THE CONSTRUCTION PERIOD of machinery TO BE USED BY A FIRM as a fixed asset, should be capitalized as part of the historic cost acquiring the fixed asset. Includes costs to bring equipment to the location and condition as necessary for its intended use. (costs in present value) -- Interest costs on the fixed asset SUBSEQUENT TO THE CONSTRUCTION PERIOD as well as all interest costs on the routine manufacture of machinery HELD FOR SALE to customers (inventory) should be expensed in the income statement for the period incurred. INCLUDES interest cost incurred during intentional delays in construction.

discounting note receivable

-- Selling/endorsing a note receivable before its maturity date. -- the amount received by the holder is determined by applying a discount rate to the maturity value of the note. -- the difference between the amount of cash received by the holder and the maturity value of the note is the discount. -- amount received by the holder = maturity value of note * (1 - adj discount rate). -- caveat: percentages or rates given are usually in annual rates. -- if annual rate is 10% then half year rate is 5%. -- if not receivable matures in 6 months and the holder discounts to bank for money after 2 months. then 4 (6-2) months divided by 12 times the discount rate is used to calculate the adj discount rate.

Direct Finance type lease

-- The Lessee does NOT gain control of the underlying asset. -- the lessor will derecognize the asset and recognize a net investment in the lease. -- Any gain will be deferred and amortized over the life of the lease, and any loss will be recognized immediately. -- For the lessee, when a lease is capitalized because of transfer of title or written purchase option, depreciation is based on the life of the asset, not the lease, The cost includes the bargain purchase price. Depreciation cannot be taken below the salvage value. -- With transfer of title or written purchase option: Depreciation expense for lessee = (book value - residual value) / life of asset. --Without transfer of title or written purchase option: Depreciation expense for lessee = PV of minimum lease payments / lease term. -- The lessee records the lease as an asset and a liability at the present value of the minimum lease payments. -- under finance lease (the lessor does not give up legal ownership of underlying asset), interest revenue is recognized. -- As time passes, the lease receivable decreases and interest revenue recognized also decreases. -- The lessee should record finance lease liability at commence at minimum lease payments. Remember to include present value of purchase option. initial lease liability = PV of lease annual payments + PV of written purchase option. -- the lease specified interest rate should be used (if not by the lessee). If it is not specified (not known by the lessee), then the lessee's incremental borrowing rate would be used. -- Rule: A lease is a finance lease if its lease term represents the major part of the economic life of the asset, with 75% serving as reasonable quantitative threshold. -- interest expense = PV of lease liability * interest rate. -- For finance leases, at lease inception, balance of ROU asset = PV of lease payments + initial direct costs - CY depreciation. CY depreciation at straight line on leased property = PV of lease payments / useful life. profit on sale in finance lease = fair value of leased asset - cost at inception.

on which defined benefit pension plan financial statement would a pension plan's interest income be reported?

-- The Statement of Changes in Net Assets Acailable for Benefits shows the causes of the changes of a pension plan's assets, which would include the causes of increases such as investment income (including interest income), appreciation of assets, and employer contributions, as well as the causes oof decreases such as benefits paid to beneficiaries and administrative expenses.

interest revenue from lease of equipment

-- The fair value of equipment is equal to present value of future cash flows. -- PV of future cash flows = annual rent * annuity due PV factor. -- total cash flow = term in years * annual rent -- total interest revenue over life of lease = total cash flow - PV of cash flow. -- interest revenue over a period = carrying value of sale type (finance) lease * discount rate * (m/12)

research and development expense under GAAP: F3:M7

-- The following are reported under R&D expense (not amortized): -R&D contracted out to a third party -preproduction prototypes and models costs - costs for searching for new products or new process alternatives. - cost of equipment purchased for current projects only - depreciation of equipment for current and future projects. - as long as its not 100% sure that the equipment for R&D will benefit the future or the work is undertaken on behalf of others under a contractual agreement, the cost of equipment for R&D will be expensed during the year purchased. - R&D salaries for current projects --- COSTS THAT DO NOT BELONG TO R&D: - costs related to FUTURE projects. only the depreciation is expensed as R&D. - legal fees for patent are capitalized and is not included in R&D expense - engineering follow up costs - marketing research - quality control testing - reformulation of a chemical compound. - software is for internal use, unrelated to production - expenses that are reimbursable Under U.S. GAAP, Research and development includes costs incurred prior to technological feasibility for developed software that is to be sold, leased, or marketed. This software is for internal use, unrelated to production and is not considered research and development. Market research is also not research and development because it is not aimed at discovery of new knowledge to develop a new product or service.

Indirect Method of cash flows:

-- The indirect method is one of two accounting treatments used to generate a cash flow statement. The indirect method uses increases and decreases in balance sheet line items to modify the operating section of the cash flow statement from the accrual method to cash method of accounting. CFO = net income + noncash expense/losses - noncash gains + increase(decrease) in operating liabilities(assets) - increases(decreases) in operating assets(liabilities) -- under indirect method, a supplemental disclosure of cash paid for interest and income taxes is required. -- noncash expense: -- depreciation, amortization -- when bond discount decreases, cash outflow increases. -- discount on bonds payable is a contra liability account. --amortization of bond discount: Dr. interest exp Cr. discount on bonds payable Cr. cash non cash gains: -- gain on sale of plant asset -- under indirect method, items that are already included in net income should not be accounted for again. ex: dividends received, interest received, gain from sale of operating asset -- under indirect method, if there are changes in non-operating assets and liabilities, i.e. nontrade notes payable, it will not affect operating cash flows. -- under indirect method, cash flow from interest payment is a supplemental disclosure. A cash outflow during the year for interest accrued and paid = decrease in interest payable + interest expense during the year + increase in interest payable.

underlying

-- a specified price, rate or other variable (e.g. interest rate, security or commodity price, foreign exchange rate, index or prices or rates, etc.) including a scheduled event, (e.g. a payment under contract) that may or may not occur.

Gross profit method

-- a way to estimate values under a periodic system using gross profit percentages from previous reporting periods and applying that percentages to current period sales revenue.

reporting loss of inventory from casualty i.e. explosions of factory

-- ability to sell damaged inventory for x amount reduces the reported loss from the casualty. -- reimbursements for the loss reduces the reported loss. -- reported loss from casualty = ending inventory - sale of damaged goods - reimbursed amounts.

Acquisition Method of business combination

-- The investment is valued at fair value of consideration given or fair value of consideration received, whichever is the more clearly evident. -- in an acquisition method business combination: acquisition costs: registration and issuance costs are recorded as a direct reduction to the value of the stock issued by reducing APIC and direct out-of-pocket costs such as legal and consulting fees are expensed. -- acquisition cost of stock does not include any measure of the relocation costs associated with subsidiary HQ. Such costs are accounted for separately from the acquisition according to the requirements for exit or disposal costs. -- When acquisition price exceeds fair value of net assets acquired, assets and liabilities should be presented at fair value. -- expensed items: a. legal fees b. due diligence costs c. acquisition costs associated with business transaction d. i.e. direct out of pocket costs and indirect costs -- capitalized and amortized items: a. issuing debt securities b. debt security registration costs are capitalized and amortized. -- direct reduction of value of stock issued (debit APIC) c. stock registration and issuance costs such as SEC filing fees -- general guidelines for assigning amounts to inventories acquired provide for: Finished goods to be valued at estimated selling prices, less both costs of disposal and reasonable profit allowance.

estimated revenue control

-- The journal entry that records the budgeted amounts for estimated revenue and approved expenditures (appropriations) is posted on the opposite side of the T account compared with actual amounts. -- Example: record budget made Dr. estiamted revenue control Dr. Budgetary control (negative/deficit) Cr. Appropriations control (approved expenditures) Cr. Budgetary control (positive/surplus) -- estimated revenue control is recorded when budget is recorded. -- example revenue items: 1. property taxes 2. licenses and permits fees 3. intergovernmental revenues The estimated revenues control account is created when the budget is recorded. The estimated revenues control account is eliminated when the budgetary accounts are closed. When property taxes are recorded, the actual revenue account is increased and there is no effect on the estimated revenues control account. Budgetary accounts are altered only when there is an approved change in the budget. Appropriations (budgeted expenditures) are a separate control account from the estimated revenues control account.

ROU asset

-- The right-of-use asset is a lessee's right to use an asset over the life of a lease. The asset is calculated as the initial present value amount of the lease liability, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received. -- if the lease is an operating lease, the balance sheet will reflect a right of use (ROU) asset and lease liability and both will be amortized over the life of the lease using the effective interest method. initial value of ROU asset = initial present value amount of the lease liability using implicit rate in lease, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received. -- EOY CV of ROU Asset = BOY CV - Annual amort. of ROU asset. Annual amort. of ROU asset = initial value of ROU asset / lease term -- CY lease expense = CY interest + CY amort. on ROU Asset. -- CY interest = BOY CV * lease interest rate. Because the question asks for the asset balance, it is important to remember that the only transaction that reduces the ROU asset value is depreciation. The $50,000 payment made at inception has no impact on the asset value; instead, it reduces the finance lease obligation (Dr. Lease Liability $50,000, Cr. cash $50,000).

governmental activities vs business type activities - government wide financials

-- Transactions from the governmental (GRaSPP) funds and usually the internal service funds are displayed as governmental activities, and enterprise funds are displayed as business type activities. -- proprietary funds, such as enterprise funds, carry their own debt under business type activity column and not in governmental activities. -- the only fund that belongs in business type activity is the enterprise fund. -- examples of enterprise funds component (not part of governmental activities (GRaSPP): - hospitals - municipal utilities -- fiduciary fund activity is only displayed in the fund financial statements. It will be excluded from governmental wide presentations.

cost of machinery

-- Under IFRS, the freight cost should be capitalized as part of the machinery's historical cost. -- Just like GAAP, the interest incurred to finance the purchase is expensed and not capitalized as part of the historical cost. Loan taken to finance a purchase should be expensed over the life of the loan.

Legal (or Par/Stated Value) Method of accounting for treasury stock

-- Under par value method, purchase of treasury stock is recorded by debiting treasury stock by the total par value of the shares. Cash account is credited for the actual amount paid to purchase the treasury stock. Any additional paid-in capital or discount on capital relating to treasury shares is cancelled by a debit or credit respectively. At this point, if the sum of credit side of the journal entry is less than the sum of debit side, additional paid-in capital account TS will be credited for the difference. Alternatively if the sum of credit side exceeds the sum of debit side of the journal entry, the difference will be debited to additional paid-in capital TS account up to the available balance and the rest, if any, will be debited to retained earnings account. Any additional paid-in capital or discount on capital relating to treasury shares = APIC or discount * (# of treasury shares bought back / # of issued shares before repurchase) The resale of treasury stock is recorded by debiting cash account for the actual amount received, crediting treasury stock for the par value of the treasury shares and if the cash received on resale is: -- more than the total par value of treasury shares, the excess is credited to additional paid-in capital account. -- less than the total par value of treasury shares, the difference is debited to additional paid-in capital from treasury stock provided it has sufficient credit balance otherwise retained earnings account is debited.

unrealized holding gain or loss

-- Unrealized gains and losses are reported as follows: Trading debt securities are reported at fair value with unrealized gains and losses included in earnings in the income statement (along with realized gains and losses, if any). -- unrealized holding gain/loss on trading securities = ending FV - Beg. FV -- Available-for-sale debt securities are reported at fair value with unrealized gains and losses reported as a component of other comprehensive income (i.e. in BS and not in IS).

accrued interest payable

-- accrued interest payable = (FV - payments) X interest rate X (m/12) -- m = months passed from latest payment to year end. -- a non interest bearing note should be recorded at PV (CV) calculated using prevailing market interest rate. -- CV = FV * interest for total periods. -- interest income = CV * i

Variable interest entity model

-- Variable interest entities: a corporation, partnership, trust, LLC, or other legal structure used for business purposes that either does not have equity investors with voting rights or lacks the sufficient financial resources to support its activities. -- the primary is not required to have greater than 50% ownership of VIE. The primary beneficiary is the entity that has the power to direct the activities of VIE that most significantly impact the entity's economic performance and absorbs the expected VIE losses and/or receives the expected VIE residual returns. -- In most cases, the VIE is used to protect the business from creditors or legal action. -- A business that is the primary beneficiary of a VIE must disclose the holdings of that entity as part of its consolidated balance sheet. -- examples of variable interests include: - explicit investments at risk explicit guarantees of debt, the values of assets, or residual values of leased assets. - implicit guarantees with related party involvement - most liabilities, EXCLUDING short term trade payables i.e. Accounts payable. - most forward contracts to sell assets owned by the entity. - options to acquire leased assets at the end of the lease terms at specified prices. (explicit means in writing and legally enforceable)

gain from acquiring more of same stock

-- When an investor goes from non-control to control of subsidiary through a step acquisition, the previously held equity must be adjusted to FV. -- Gain from buying additional stock by adjusting old stock to FV = original interest % * FV of sub in new period minus Beg. CV.

government-wide statement of net position

-- When special assessment debt is to be repaid from general resources of the government, the debt should be recorded as general long-term liabilities in the governmental activities column of the government-wide statement of net position as is any debt that is to be repaid from general resources.

assets purchased requiring fixed payments extending beyond one year

-- Whenever assets are purchased requiring fixed payments extending beyond one year, the assets should be valued at the present value of all future payments.

Under US GAAP, earnings per share should be reported for: discontinued operations and income from continuing operations?

-- Yes for both discontinued and continuing operations. -- If the entity reports a discontinued operations, the entity presents the basic and diluted (if applicable) per share amounts for those items either of the face of the income statement of in the notes to the financial statements. Basic and diluted per share amounts for income from operations and for net income should be presented on the face of the income statement (or statement of income and comprehensive income if the entity is using the one-statement approach) with equal prominence.

interperiod equity

-- a balanced budget demonstrates interperiod equity, -- it is a significant part of accountability on behalf of a governmental entity. -- It helps users assess whether current year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume burdens for services previously provided. -- residual equity transfers is an obsolete term.

bond purchase at a discount

-- a bond is issued at a discount when the stated rate on the bond is less than market (effective) interest rate on the date the bonds are issued. -- CV is less than cash paid by investor because accrued interest is included in cash. -- CV is less than face amount of bond because it was purchased at discount. -- The bond payable is always credited for entire FV of bond when bonds are issued. and discount is reported under discount on bonds payable is debited. -- Bond issuance costs are deducted from the CV of bond payable and is included in debit entry to bond discount upon issuance. -- as part of discount from par (debited to discount on bond payable), bond issuance costs are amortized over life of bond using effective interest method.

equity method of reporting investment in another company

-- a company that owns 20 to 50% of voting stock of another company is presumed to be able to exercise "significant influence" over the operating and financial polices of that investee and, therefore, MUST USE the equity method when presenting the investment in that investee in: - consolidated financial statements that include other consolidated entities, but not that investee, or - unconsolidated parent company financial statements. -- equity method must be used when parent has significant influence over the sub. Even if threshold of 20-50% is not met, the investor is seen to have significant influence if it has: a. representation on the board of directors or b. participates in policy making processes c. material intercompany transactions d. interchanges managerial personnel, or e. the investee has technological dependency on the investor. -- Even if investor owns 20% or more of sub, if there is some other individual that own more than 50% and have control, then the investor needs to use fair value method instead of equity method. Note: 1. income from an investee is recognized only from date of purchase in investee. 2. preferred stock ownership does not allow the investor to exercise influence, so the stock must be accounted for using fair value method, thus must be recorded as dividend revenue instead as decrease in investment account. 3. change in the investment in sub account does not change the number of shares owned i.e. ownership percentage. 4. with equity method, dividends received does not affect income statement but it affects balance sheet by decreasing the investment in sub account, unless the dividend is a liquidating dividend. (in fair value method, dividends received is recorded as dividend revenue) 5. when investor receives dividend from common stock in excess of investor's share of investee's earnings (liquidating dividend), the investment account will decrease under both equity and fair value method. 6. Changes in market value of investee's common stock are not considered income to the parent under the equity method. 7. Any goodwill created in an investment account for under the equity method is ignored. It is neither amortized nor tested for impairment. The entire investment is subject to the impairment test. main journal entries: journal entry to record initial investment: Dr. investment in sub, Cr. Cash Journal entry to recognize investee's net income Dr. investment in sub, Cr. equity in investee income journal entry to recognize common stock dividend paid by the investee: Dr. cash, Cr. investment in sub. Under equity method, common stock dividends are recorded as a reduction to the investment account. Preferred stock dividend: Under equity method, the preferred stock ownership does not allow the investor to exercise influence, so the preferred stock investment is accounted for using the fair value method and preferred stock dividends are recorded as dividend revenue on the income statement. -- one can assume the investor company has significant influence if it the largest single shareholder and has majority on board of directors of investee. -- when company has significant influence of another company, the company owning the other company is required to disclose the following: - investing company's accounting policy for the investment. -- investors records as revenue its "share of the investee's earnings" (not "dividends received"). This increases the investment account. -- dividends from an investee company are recorded by the investor as a reduction in the carrying amount of the investment on the BS of the investor. -- income recorded for the period = %ownership in investee * earnings of investee during the period. (NOTE: when significant influence is acquired during the year, the equity method is adopted from that date going forward. Retroactive adjustments are not required. Therefore, investor will recognize income from investee's earnings with the new % ownership from that date till year end.) -- if investor acquires significant influence at Dec. 31, it will start to use equity method on that date, and will add its share of investee's earnings to the investment account beginning next year. -- Rule: when two or more purchases of stock cause ownership in an investee to go from less than 20% to more than 20%, the cost of acquiring the additional interest in the investee is added to the CV of the investment and the equity method is adopted as of the date that significant influence is acquired and going forward. -- extra value of inventory are just written off. - for investor, write off of extra value inventory = excess FV over BV * ownership percentage. -- income from an investee is recognized only from date of purchase. -- the excess of an asset's FV over its BV is amortized over the life of the asset (excess caused by land is not amortized). This additional amortization causes the investor's share of the investee's net income to decrease. Dr. Equity in investee income and Cr. Investment in investee. -- decrease in investee's earnings from excess FV amortization = excess FV of investee * %ownership / useful life. -- INA = identifia -- excess to goodwill from investee = (purchase price - (NBV*%ownership)) - ((FV of INA - NBV of INA)*%ownership) = FV of sub minus FV of sub's net assets.ble net assets. -- When acquiring a corporation with an acquisition cost that is less than FV of 100% of underlying net assets acquired, the BS, including identifiable assets, must be adjusted to FV. This creates a negative balance in the acquisition cost account, which is recorded as a gain. (i.e. when FV of net assets you purchase is higher than acquisition cost, you need to record a gain.) -- accounting for asset fair value differences: the excess of subsidiary's asset's fair value over its book needs to be amortized over the life of the asset (excess caused by land is not amortized). This additional amortization causes the investor's share of the investee's net income to decrease.

periodic inventory method

-- a company using a periodic inventory system must estimate inventory and COGS in interim financial statements, because periodic systems do not continuously update inventory throughout the year.

the debt service transactions of a special assessment issue for which the government is not obligated in any manner should be reported in a what type of fund?

-- a custodial fund, rather than a debt service fund, to reflect that the government's duties are limited to collecting and remitting funds without administrative involvement for the assessed property owners and bondholders.

criteria for recognizing a liability associated with exit or disposal activities

-- a liability is only recognized when all of the three following criteria are met: 1. an obligating event has occurred. 2. the event results in a present obligation to transfer assets or to provide services in the future. 3. the entity has little or no discretion to avoid the future transfer of assets or providing of services.

estimating bad debts on aging of receivables

-- a method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on aging of receivables. -- Aging the receivables. Estimating bad debts on the aging analysis of accounts receivable balances focuses on the balance sheet and emphasizes the valuation of assets. It results in a good matching of revenue and expense. -- AFDA = sum of (AR times uncollectible percentages). -- focuses on the balance sheet and emphasizes the valuation of assets. -- It results in a good matching of revenue and expense. -- year end bal. of AFDA = Beg. bal. allowance + UAE - write-offs. -- the sum of the uncollectible balances for the aging categories is the desired ending balance in the allowance account.

perfect hedge

-- a perfect hedge results in neither a gain nor loss. -- the gain or loss on the derivative instrument exactly offsets the loss or gain on the item or transaction being hedged.

year end aging of accounts receivable (BS approach(

-- a schedule is prepared categorizing accounts by the number of days or months outstanding. Each category's total dollar amount is them multiplied by a percentage representing uncollectibility based on past experience. The sum of the product for each aging category will be the desired ending balance in the allowance account. -- THE AMOUNT CALCULATED FOR PROVISION IS THE ENDING BALANCE OF AFDA. -- uncollectible accounts expense or bad debt expense at year end = provision for uncollectible accounts + year end adj. -- the year end adjustment should be the difference between the estimated uncollectible accounts per aging and ending balance before adjustment. -- ending bal. before adj = beg. bal + provision for year - uncollectible AR written off.

bonds quoted at a discount

-- bond discount is difference by which FV is lower than face value i.e. value printed on the bond/security. -- if market interest rates have increased after a bond has been issued previously, then the bond's interest rate would be less attractive now than when the bonds were originally issued. This would most likely cause a decline in bond's FV. -- but if interest rates decline since purchase of a bond, then the bonds would be selling at a premium rather than a discount. record issuance of bond on discount: Dr. Cash Dr. Discount on bond payable Cr. bond payable

unamortized discount

-- bond liability is shown on BS of net unamortized discount. -- long term liability will increase by the difference between CV of old face amount and the new FV of new x year old bond.

effective interest method of amortizing bond discount

-- bond payable = bond issued amount + (interest on issued amount * (m/12)) - (interest on FV with stated rate * (m/12)) -- m = number of months amortized. -- issued amount = FV - discount + premium -- End. CV of bond = beg. CV + amortized discount. -- amortized discount = (effective interest * (m/12)) - (cash interest * (m/12)) effective interest = issued amount * yield rate cash interest = face value of bond * issued rate -- JE for discount bond issued: Dr. Cash Dr. Discount Cr. Bond payable -- JE make payment: Dr. interest expense Cr. Amort of bond discount Cr. Cash -- interest payable or cash paid = FV of bond * stated rate. -- the principal -- if bond is issued with accrued interest, then the proceeds at issuance will increase by that accrued interest. -- accrued interest = FV * stated rate * (m/12) -- m = months between bond dated date and issuance date. -- the bond carrying value at issuance = initial issuance price. accrued interest will not affect bonds payable, but affects initial cash received. discount amort. does is not considered until bonds are issued.

amortizing bond premium

-- bond premium is amortized over the life of the bond with amortized amounts decreasing interest expense each period. If interest expense is not appropriately decreased, then interest expense will be overstated. Overstating interest expense will lead to understatement of net income, which is then closed to stockholder's equity, which will understate stockholder's equity.

how to alter timing of receiving cash from Accounts receivables

-- by factoring/selling receivables at a discount to a factor (financial institution) either with or without recourse. -- circumstances that does not work: 1. changing due date of invoice: the due date cannot be changed after the invoice has been sent, nor is changing the due date likely to speed up the overall customer payment rate. 2. discounting receivables: this is the process of converting notes receivables, not AR, to cash. 3. demand payment from customers: is likely to anger customers, not likely to speed up the overall customer payment rate.

carrying amount of fixed asset on consolidated BS

-- carrying amount of fixed asset on consolidated BS = related company's (purchaser) original cost - seller's recorded gain. -- i.e. original owner's carrying value before sale.

cash flows from restructuring debt

-- cash flows should be discounted at the rate prior to restructuring.

statement of financial position (BS) for NFP

-- categories include: assets, liabilities, and net assets. -- The components of net assets for NFP orgs are classified in two possible ways: with donor restrictions and without donor restrictions.

change in fund balance vs change in net position

-- change in net position: CANS: fund balance + + capital assets net of - accumulated depreciation - non current liabilities + service (internal service fund) net position -- Change in fund balance: using the CPAS RIDES mnemonic. Change in net position of governmental activities = Net change in fund balance (GRaSPP) - total govt funds + Capital outlay expenditures + Principal payments on noncurrent debt - assets disposals (NBV) - sources (other financing sources i.e. debt proceeds) + revenue (measurable but unavailable) - interest expense (accrued) - depreciation expense + internal service fund net revenue. not changes in fund balances: 1. interest payment on debt. 2. principal payments not from debt.

object classes

-- chart of accounts

gain contingencies

-- claims or rights to receive assets (or have a liability reduced) whose existence is uncertain but which may become valid eventually based upon the occurrence or non-occurrence of future event. -- Gain contingencies are not recognized in financial statements because to do so may cause recognition of revenue prior to its realization. An entity should disclose a contingency that might result in a gain in the notes to the financial statements, but should be careful to avoid misleading implications about the likelihood of realization. -- gain contingencies should be disclosed unless likelihood of realization is remote. -- gain contingencies are not reported as revenue until realized. Gain should be reported in the year realized before financial statements are issued. However, adequate disclosure in notes to financial statements should be given.

committed fund (govt)

-- committed fund balances represent resources that can only be used for specific purposes pursuant to constraints imposed by formal action of the government's highest level of decision making authority.

common stock that contains an unconditional redemption feature

-- common stock that contains an unconditional redemption feature should be reported on the issuer's books as a liability on the date of issuance because there is an obligation of a cash outflow in the future that the company has no ability to prevent.

Earnings per share disclosure is required for what kind of companies?

-- companies with publicly traded common stock or potential common stock including: stock options, stock warrants, convertible securities, contingent stock agreement. -- Also required by companies that have made a filing or are in the process of filing with a regulatory agency (e.g. SEC) in preparation for a public sale of common stock.

economic entity

-- company keeps its activity separate from its owners and other businesses. -- reporting consolidated financial statements is consistent with the concept of economic entity can be identified with a unit of accountability.

composite depreciation

-- composite life = depreciable cost / annual depreciation -- depreciable cost = sum of (estimated cost - salvage value) -- annual depreciation = sum of annual depreciation of each asset in the composite.

consolidated current assets

-- consolidated current assets = consolidated current assets before eliminating entries - unrealized profit in inventory + excess FV over CV. -- unrealized profit in inventory = interco profit on inventory times % of inventory purchased still on hand. -- Reasoning: profit from intercompany transaction creates extra cash i.e. current assets that should not be realized until the intercompany inventory is sold to an outsider. -- intercompany gain/loss on sale remains unrealized until the asset is sold to outsider.

consolidated gross profit

-- consolidated gross profit = sum of gross profit of parent and sub - unrealized profit in inventory -- unrealized profit in inventory = interco profit on inventory times % of inventory purchased still on hand.

consolidated net income

-- consolidated net income = parent's net income - equity in sub's income + parent's share of sub income. -- in an acquisition, net income of newly acquired sub will only be included in consolidated net income from the date of acquisition. -- EX: if A buys 20% of B in January 1 and 50% more in July 1. A gets 20% of B income from Jan 1 to July 1 and gets 70% of B income from July 1 to December 31.

consolidated plant assets

-- consolidated plant assets = BV of parent's plant assets + FV of sub's plant assets

consolidated retained earnings

-- consolidated retained earnings = parent's retained earnings.

art, collection

-- contributed collection items should not be recognized as revenues as gains if collection are not capitalized. Cash flows from purchases, sales and insurance recoveries of unrecognized, non capitalized collection items should be reported as investing activities in a statement of cash flows. -- a NFP that does not recognize and capitalize its collection (art) should report the following on the face of its statement of activities separately from revenue, expenses, gains, and losses: 1. costs of collection items purchased as a decrease in the appropriate class of net assets. 2. Proceeds from sale of collection items as an increase in the appropriate class of net assets. 3. Proceeds from insurance recoveries of lost or destroyed collection items as an increase in the appropriate class of net assets.

contribution margin

-- contribution margin = selling price per unit - variable cost per unit.

cost of goods sold with cosignees

-- cosignors/sellers must include cosigned goods in his own inventory, at his cost plus warehousing costs of cosignor before goods are transferred to cosignee plus shipping costs to cosignee. -- following are included in inventory costs: purchases, freight in, transportation to cosignees. -- following are not included in inventory costs: freight out, advertising, marketing

cost of assets required for closure and post closure costs

-- cost of assets required for closure and post closure costs would be accrued on an annual basis. When the actual asset is purchased, assets will not increase although the payment will serve to reduce the outstanding liability.

costs related to exit and disposal activities

-- costs related to exit and disposal activities: - involuntary employee termination benefits. - cost to terminate a contract except for capital leases. - other costs associated with exit or disposal activities, including costs to consolidate facilities or relocate employees. -- NOT related to exit and disposal activities: - cost of retiring a fixed asset - cost to terminate a capital lease.

inherent risk of interest rate swap agreement

-- credit risk: results from nonperformance of counter party to the agreement, -- market risk: risk of exchanging lower interest rate for a higher interest rate.

functional currency

-- currency of the primary economic environment in which the entity operates. -- the functional currency of an entity is generally depends upon the environment in which the entity generates and expends cash (unless there is a requirement by law to use another currency), which may be any of the below three. However, the functional currency cannot be the local currency if the foreign entity operates in a highly inflationary environment. 1. a foreign entity's local currency, which is typically the one used to keep books. 2. currency in which financials are presented, which is currency of the parent. 3. a foreign currency other than the one in which the foreign entity maintains its books.

current liabilities vs non current

-- current liabilities includes: - A/P - Bond payable less the discount - current year portion of multi year(annual) installment loan. non current liability: - deferred tax liabilities. - more than a year maturing balloon loan.

the rate to be used to translate all assets and all liabilities from the functional currency to the reporting currency (USD) is the

-- current rate, that is, the exchange rate in effect at the balance sheet date. -- but common stock and additional paid in capital (i.e. capital accounts) are translated using historical exchange rates.

rent/lease expense for the year; lease liability

-- current year lease expense only recognizes current year related expense. When rent for next year is paid in current year, it is not recognized in current year but recognized in next year. I.e. Prepaid rent expense is not recognized until incurred. -- security deposit is not part of revenue or income. If the tenant moves out at end of lease term, the deposit is taken into revenue and matched with cleaning costs and damage repair and/or refunded to the tenant. The deposit is not revenue upon receipt. -- long term liability net of current portion means excluding current portion. -- with a finance lease obligation, -- CY lease interest expense = the lessor of lessee's incremental borrowing rate or the lessor's implicit rate (if known) * lease obligation including current year portion. -- short term liability = next year's principal reduction = next year cash payment - CY lease interest expense. -- year end (long term) lease liability net of current portion = year end lease obligation balance - short term liability. -- present value of lease liability should be used. -- excludes expenses i.e. real estate taxes, which are expensed when paid.

custodial fund

-- custodial funds are used to account for assets (e.g. taxes collected) held by a governmental unity (such as a county) acting as a collection agent in a fiduciary capacity for another governmental unit (such as a school district). -- when the governmental unit is not obligated in any manner for the special assessment debt, it acts as custodian of the resources related to the special assessment. In this case, a custodial fund should be used to report the debt service transactions. -- To record fees received for tax collection for other governmental units: Dr. Cash and Cr. Additions - Fees

In computing the weighted average number of shares outstanding during the year, what event that happens in midyear must be treated as if it had occurred at the beginning of the year?

-- declaration and distribution of stock dividend and stock splits. -- issuance (sale) of new shares and repurchase of firm's shares (treasury stock) are included in weighted average number of share outstanding calculation from the date of the sale or purchase of the shares. EX: so when there is a stock dividend of 100 shares in Jan. 31 year 2, Is is deemed that Year 1 Dec. 31's shares increases by 100 shares. I.e. treated as if it occurred at the beginning of the year.

depletion

-- depletion dollar value per unit of depletalbe unit = total cost of asset being depleted divide by estimated amount of depletion units extraction during its useful life. -- total cost = cost of asset + cost to prep for extraction + restoration cost - salvage value/sale value at end of useful life. -- Note that depletion amount per unit would be the same for every year unless additional expenditures were incurred.

sinking fund

-- deposits into a sinking fund are an asset by a trustee to repay the entire liability at maturity. -- long term debt

sum of the years digits method of depreciation

-- depreciation expense = sum of (fraction times base) -- note: the base does not change each year. --- number of fractions = number of useful life years. --- base = purchase price - salvage value. -- Example: purchase price = 20,000. salvage value = 2,000. estiamted useful life = 4 years. then the sum equals: year 1: 4/10 times 18,000 = 7200 year 2:v3/10 times 18,000 = 5400 year 3: 2/10 times 18,000 = 3,600 year 4: 1/10 times 18,000 = 1,800 depreciation expense total of 18,000. denominator = 4+3+2+1 = 10 numerator goes high to low. -- depreciation starts at a level higher than straight line and declines at a CONSTANT RATE to the depreciation base.

depreciation expense (govt)

-- depreciation expense is not recorded in governmental funds, but it is recorded in proprietary funds.

double declining method of depreciation (DDB)

-- depreciation rate per year is double the straight line method. -- straight line depreciation rate = depreciable base / useful life in years. -- depreciation expense for DDB for current year = 2 * SL rate * current carrying value of asset -- SL rate does not change unless method of depreciation changes. -- under the DDB method, salvage value is not taken into account. But, depreciable assets should not be depreciated below salvage value under any depreciation method. -- In the final year, the asset is depreciated to its salvage value, if any. -- Note: when method changes from DDB to SL, the SL rate = 1 / remaining useful life. -- When switching methods, book/carrying value (not original cost) and remaining life (not original life) should be used to calculate depreciation. -- double declining balance depreciation starts at a level higher than SYD and declines rapidly to the depreciation base, but not at a constant rate. -- In all depreciation methods except DDB, salvage value is subtracted from an asset's cost in arriving at the depreciation base. If salvage value is improperly excluded from the depreciation computation, depreciation will be overstated and net income under-stated for both the straight line method, production or use method, and sum of the year's digits method. -- The "double" means 200% of the straight line rate of depreciation, while the "declining balance" refers to the asset's book value or carrying value at the beginning of the accounting period. Since book value is an asset's cost minus its accumulated depreciation, the asset's book value will be decreasing when the contra asset account Accumulated Depreciation is credited with the depreciation expense of the accounting period.

Direct method of cash flows:

-- difference of direct method and indirect method is the difference in how cash flow from operations (CFO) is calculated. -- under direct method, the CFO is calculated by starting with cash from customers and subtracting cash paid for operating expenses. -- The following are required disclosures of a statement of cash flows under the direct method under US GAAP.

what should be part of earnings per share for the weighted average shares outstanding?

-- dilutive contingent shares. not part of WASO: -- stock options -- convertible securities

component units may be presented using either the

-- discrete or the blended method within the financial statements of the primary reporting entity. Government wide presentation is a component of basic financial statement presentation and is not an acceptable or recognized method to present component units.

dividend in arrears

-- dividend in arrear should be included in income from continuing operations in the year that is paid.

dividend income

-- dividend income is part of continuing operations.

dividends payable

-- dividends payable is credited when dividends are DECLARED. -- when corporation declares dividend, they need to Cr. dividends payable and Dr. retained earnings.

cash flow from operations

-- dividends received is reported as operating cash inflow. (dividends paid is reported as financing cash outflow). -- Under US GAAP, interest and dividends received must be reported in operating cash flow because interest and dividend income is reported on the income statement. But under IFRS, they are reported in either operating or investing cash flow. -- Under US GAAP, interest paid must be reported only in operating cash flow because interest expense is reported on the income statement. But for IFRS, it can be reported on either operating of in financing cash flow. Under US GAAP, dividends paid must be reported in financing cash flow because dividends are paid on equity and are not reported in income statement. But for IFRS, dividends paid may be reported in operating or financing cash flow.

Donated property

-- donated property is recorded at fair market value and is recognized as support.

donated services (contribution revenue and expense)

-- donated services should be recorded as a contribution revenue and expense at FMV if the services meet the following criteria: 1. They create or enhance a nonfinancial asset. OR 2. They require specialized skills that the provider possesses and would otherwise have been purchased by the organization. (e.g. attorney, accountant, doctor service, repairing service. -- contributed services are therefore only recognized SOME of the time: when the service is Specialized, Otherwise needed, and Measured Easily. donated services not included: 1. for special events

dues from other funds

-- dues from other funds appears on the balance sheet. They are not a component of changes in net position (assets - liabilities)

encumbrance (normal debit balance)

-- encumbrance are recorded when resources are committed for future expenditures. -- commitment funds for purchase orders; obligation to spend. -- encumbrances are either commitments or assignments of the fund balance for purchase orders and represent a reduction of available appropriations. (also represents unperformed contracts for goods or services.) -- to record purchase order issued: dr. encumbrance, cr. budgetary control -- when goods are received that had been approved for purchase, the encumbrances should decrease. -- encumbrances at year end do not constitute expenditures or liabilities. -- encumbrance accounting is used in the governmental (GRaSPP) funds is not used in the proprietary (SE) or fiduciary (CIPPOE) funds. -- for state and local govt units, GAAP requires that encumbrances outstanding at year end be reported as component of committed or assigned fund balances so that funds will be available when the goods and/or services are received.

bond liability

-- end bal. of bond liability = issued amount - bond issuance cost -- discount or premium on sale of bonds as well as the bond issuance costs are included in CV of bonds on BS.

Non-controlling interest

-- ending NCI = Beg. NCI + NCI share of subsidiary net income - NCI share of subsidiary dividends paid. -- when sub declares and pays dividends, the parent will receive cash, so no effect in parent's Retained earnings, but it will lower NCI on BS because of equity method.

enterprise fund

-- enterprise fund accounts for a government's for profit type of operations, which provide goods and services to the general public. e.g. municipal utilities -- enterprise funds record and depreciate their own fixed assets in a manner consistent with the economic resources measurement focus and accrual accounting.

value or settlement amount of a derivative

-- equals multiplication or some arithmetic interaction between the notional amount (e.g. shares of stock) and underlying (e.g. price per share).

partner's share of net income

-- equals net income times his income/loss allocation % from partnership agreement.

current tax expense

-- equals taxable income times tax rate

gain/loss from forward exchange contract for speculation (e.g. does not relate to specific transaction)

-- equals the difference in the forward rate at the date of contract is purchased and the forward rate at the BS date.

capitalized interest (PP&E)

-- equals the smaller of the total interest incurred for any purpose or the avoidable interest. -- total interest equals total interest expense on all debt i.e. debt tied to construction and debt not tied to it. Excludes interest amount from weighted avg. calc. --- calculation equal sum of (amount borrowed times annual interest rate) -- avoidable interest equals the interest on the weighted average amount of accumulated expenditures, which equals average accumulated expenditures times interest rate on specific borrowing. --- when accumulated expenditures are spent uniformly during the year, then the average accumulated expenditure = total amount spent during the year divided by 2. --- example of calculation for weighted average expenditures (WAE) is: if $1,000,000 was paid in January 2 and another $1,000,000 was paid in December 31, then WAE = 1,000,000(12/12) + 1,000,000(0/12) = 1,000,000. At an interest rate of 8%, the amount of interest to be capitalized is equal to $1,000,000 * 8% = $80,000. -- capitalized interest is based on the weighted average of accumulated construction expenditures. --- WAAE = sum of (expenditure amounts times portion of year outstanding ratio) --- FIRST, the interest rate paid on borrowings specifically for the asset is used to determine the amount of interest cost capitalized. (WAE times interest rate on asset loan) --- SECOND, if the average accumulated expenditures outstanding exceed the amount of the specific new borrowing, interest on the excess is computed on the interest rate for other borrowings of the company.

escrow liability

-- escrow liability ending bal = beg. bal + escrow receipts during the year - real estate taxes paid + interest earned during the year - maintenance fee charged to customers.

estiamted loss on purchase commitment/agreement - (noncancelable purchase contract)

-- estiamted loss on purchase commitment CY = minimum annual purchase of number of units times the number of years left after end of CY times (purchase price minus scrap value). -- when the current market value of the inventory is less than the fixed purchase price in a purchase commitment, the loss must be recognized at the time of the decline in price, a liability must be recognized on the balance sheet and a description of the losses must be described in the footnotes. -- a loss is only recorded under a purchase commitment in which the purchase is obligated to purchase A FIXED NUMBER OF UNITS. If you are not required to purchase anything, you do not recognize a loss from purchase commitment.

closing budgetary accounts at year end

-- estiamted revenue control account should be credited for $xx to offset the $xx debit balance that existed before closing.

special revenue fund vs capital project fund

-- example: taxes received to install sidewalk would be under capital project fund because it can be capitalized. But for road repairs, it may or may not be capital outlay expenditures and specifically might relate to only repairs that are not eligible for capitalization. Thus, tax for repairs would go with special revenue fund. The City of Sharpton would record capital acquisitions in its General Fund as capital outlay expenditures. The amount of the capital outlay expenditure is equal to the amount spent or obligated, $180,000.

membership development expense (Not for profit, NFP)

-- examples of membership development expenses: 1. soliciting prospective members 2. membership brochure costs

nonoperating revenue (government)

-- examples of non operating revenue for government: 1. receiving state appropriations represent a nonexchange transaction and will be treated as nonoperating revenues. 2. operating grants and subsidiaries (that represent nonexchange transaction that are not derived from operations). -- shared revenues are revenue levied by one government but shared on a predetermined basis with another government. Shared revenues received by a proprietary fund should be recorded as non operating revenue if received for operations or if received for either operations or capital expenditures at the discretion of the recipient governmental unit.

fund balance (gov't)

-- fund balance is equivalent to equity in the balance sheet of the governmental funds and is equal to assets (and deferred outflows) minus liabilities (and deferred inflows).

operating activity (NFP) nongovernment

-- examples of operating activities for NFP: 1. applicable agency transactions 2. cash contributions without donor restrictions 3. program income 4. and interest income or dividend income from investment. Cash flows from operations would include cash flows from contributions, program income and agency transactions. Cash flows from operations might also include receipts designated by the entity's governing body for use for long-lived assets. Donor restricted receipts to be used for long-lived assets, however, are classfied as financing actiivities.

investment trust fund

-- examples: 1. investment pools operated by a government that accounts for the investments of other entities. -- investment trust fund requires these financial statements: statement of fiduciary net position (balance sheet) and a statement of changes in fiduciary net position (income statement).

costs that are neither program nor support costs for NFP

-- examples: 1. renovations 2. upgrades to pro shop inventory for golf country club -- these would be capitalized consistent with commercial accounting.

exchange vs nonexchange transaction

-- exchange transaction is a reciprocal transfer in which each party receives and sacrifices something of approximately equal value. (has bargain value) -- nonexchange transaction involves giving/receiving value without receiving/giving equal value in return. (no bargained value nor arms length transaction)

expenditures

-- expenditures are recorded for the amount incurred when goods are received. -- general fixed assets, such as land, buildings, equipment purchased with general fund resources should be recorded as expenditures in general fund. -- expenditures extending over more than one period may be allocated between or among accounting periods. (consumption method) Or may be accounted for as expenditures of the period of acquisition. (purchase method) -- Non spendable current resources such as inventory or prepaid may be recorded using either the consumption or the purchases method. -- other examples of expenditures: 1. quasi external transactions (one in which the governmental fund acquires a good or service that could have been purchased from an unrelated business enterprise) e.g. service charge for utilities. Following entry should be made in general fund: Dr. Expenditures; Cr. Due to electric utility enterprise fund

for NFP donated stocks are measured at ...

-- fair value on date of donation and not year end like the rest.

Fair value option to financial assets

-- fair value option applies to financial assets (e.g. debt and equity securities) and liabilities (e.g. notes payable). -- following are excluded from FV option: - investment in subsidiaries - pension benefit assets/liabilities - assets and liabilities recognized under leases (i.e. capital leases)

depreciation of asset: cash to accrual

-- first, reverse equipment expense: debit equipment and credit equipment expense. -- second, debit depreciation expense and credit accumulated depreciation.

estimated other financing sources (government)

-- following are classified under estimated other financing sources in the budgetary entry: 1. proceeds of debt issues 2. interfund transfer 3. payment of debt 4. proceeds from sale of capital asset

percentage of sales method of AR

-- for AFDA only the AFDA provision rate of sale is needed to calculate AFDA. (the uncollectible accounts expense for the year is only affected by the CY provision of uncollectible accounts expense.) --NOTE: BEGINNING BALANCE OF AFDA IS NOT CONSIDERED IN THIS CALCULATION. -- THE CALCULATION IS CALCULATING FOR ADDITIONAL AFDA NEEDED. WHICH WILL AFFECT THE UAE BY SAME AMOUNT.

allowance for doubtful accounts (AFDA)

-- for doubtful accounts, debit bad debt expense and credit AFDA. -- to write off an account debit AFDA and credit AR. -- to recover account: debit AR and credit AFDA; debit cash and credit AR. -- OR when the two JEs are combined it is Dr. Cash and Cr. AFDA.

principal market for stock value calc

-- for principal market, take stock price of principal market times number of shares for balance sheet balance. -- step1 when there is no principal market, we need to determine which one is the most advantageous market. (it is based on highest value of what we would get after deducting any transaction cost from quoted stock price.) --step 2, amount you report on balance sheet = (quoted stock price that's most advantageous times # of shares you own). Uses Fair value measurement basis.

software

-- for software developed internally, costs incurred in the preliminary stage are expensed under US GAAP. -- costs included as capitalized software costs: - coding/testing/planning costs after establishment of technological feasibility. - costs of producing product masters for training materials. -- costs AFTER the preliminary project stage are capitalized and depreciated over the economic life of the product. -- cost that does not belong to software: - to train employees to use software. costs to train employees are expensed under training and maintenance. -- maintenance costs prorated by length of agreement and when maintenance period begins and to year end. -- software modification costs are capitalized and amortized using straight line over useful life. -- costs to expense for software: - amortization expenses - impairment loss. which happens when CV > FV. - FV = estimated future gross revenue from sale of software - future disposal costs.

foreign exchange transaction gain or loss

-- foreign exchange transaction gain or loss that is recognized in current net income must be computed at each balance sheet date on all recorded transactions denominated in foreign currencies that have not been settled. -- Rule: Gains and losses resulting from foreign exchange transactions that are an "extension" of the parent's domestic operations are included as a component of "income from continuing operations" in the period in which they occur. -- for buyer: gain or loss equals difference in rates of when the transaction was first journalized (when title of good transfered or when payable/receivable is recorded) and year end rate. -- for seller: gain or loss equals difference in rates of year end and when payment was received. -- foreign exchange gains and losses are NOT reported net of tax after discontinued operations. They are reported in net income from continuing operations. i.e. in net income before discontinued operations. The translation loss from its wholly owned foreign subsidiary is not included in net income as it does not impact cash flows. It would be included in other comprehensive income in shareholders' equity.

speculation

-- invest in stocks, property, or other ventures in the hope of gain but with the risk of loss. i.e. gamble, take a risk.

gain/loss on bond retirement

-- gain/loss on bond retirement is reported in income from continuing operations, not in other comprehensive income. -- if settlement price > BV of bond, a loss is recognized. and vice versa. gain or loss on bond retirement = net carrying value - reacquisition price -- reacquisition price is usually shown as a percentage of bond's face value. -- net carrying value amount of bond is the carrying value (i.e. face value of bond plus unamortized bond premium or minus unamortized bond discount and minus unamortized bond issuance cost.

gain and loss (component of pension cost)

-- gains and losses arises from two sources: 1. the difference between the expected and actual return on plan assets when the expected return on plan assets is used to calculate net periodic pension cost. Note: the difference between expected and actual return on plan assets will be amortized the year after actual payment (return). Amortization is based on beginning balance in the unrecognized gain/loss account. 2. Changes in actuarial assumptions (actuarial gains and losses). under US GAAP, entities have two choices when accounting for gains and losses: 1. recognize gains and losses on the income statement in the period incurred; or 2. recognize gains and losses in other comprehensive income in the period incurred and then amortize the unrecognized gains and losses to net periodic pension cost over time using the corridor approach. most companies choose this option to smooth earnings.

gains/losses on hedges of firm commitment's for a future purchase or sale

-- gains/losses on hedges of firm commitment's for a future purchase or sale be recognized in current income -- in addition, firm commitment must be adjusted to fair value with the resulting gain or loss recognized in current income. The Difference between the gain or loss on the hedge contract and the gain or loss on firm commitment is the net effect on current income.

Goodwill GAAP

-- goodwill = acquisition cost - BV net assets - excess FV of net assets - FV identifiable intangible assets - balance sheet FV adjustment. - INA could be tangible or intangible. -- INA = identifiable net assets. -- FV INA is usually given -- BV is stockholder equity of assets minus liabilities. -- amount paid for an existing business above the value of its other assets. -- FV of subsidiary purchased on date the acquisition is finalized = purchase price / % acquired. -- BV of sub purchased = CV of assets - CV of liabilities. example journal entry for goodwill: Debit various asset accounts for $4 million Credit various liability accounts for $1 million Credit Cash for $5 million Debit Goodwill for $2 million -- money spent to maintain goodwill is expensed and not capitalized. (this is internally created goodwill and is expensed because an objective measure of its value is difficult to obtain) -- goodwill has indefinite life. -- it is not amortized, but it is subject to an impairment test. -- internally generated goodwill cannot be recognized as an asset and cannot be capitalized. It will be treated as an expense in the period incurred. -- goodwill is not amortized. goodwill is not disposable, so it can never restore from impairment loss under GAAP. -- when FV is less than CV, a loss on impairment is booked on IS and reduction in goodwill is booked to BS. goodwill impairment: A company will perform impairment analysis and record necessary entries on all assets of the company prior to performing impairment analysis related to goodwill. Reporting units (segments) will be separately tested for impairment analysis. If the fair value of a reporting unit is less than the carrying value, the impairment is assumed to be due to the goodwill as all other assets of the reporting unit would already have been properly adjusted. CV of reporting unit = total historical cost of assets - total CV of assets, including goodwill. -- goodwill impairment loss = CV reporting unit - FV reporting unit, not to exceed book (carrying) value goodwill currently reflected on the balance sheet.

goodwill to original partners (goodwill method)

-- goodwill equals new total capital minus total assets contributed -- new total capital = new partners' invested amount divided by his capital interest %. --total assets contributed = equity plus liability -- OR equals implied total capital of partnership MINUS actual total capital of partnership. -- implied total capital of partnership = new partner's contribution times new partner's ratio times its denominator. -- Actual total capital of PS = sum of all capital balances and new contribution. -- goodwill is given to partner whose initial contribution is lower than his capital balance. -- initial capital balance = initial contribution plus goodwill. -- Goodwill method increases the individual partners accounts and also changes total net assets of the partnership. -- cash received by partner leaving = capital bal. + increase from asset revaluation + bonuses. (It will be same as bonus method.) --goodwill booked: you can calculate it by using extra cash paid to partner leaving as amount from goodwill and his P&L % to calculate 100% goodwill. -- asset reval credited to partner = P&L% times change in asset value. -- goodwill credited to partners not leaving = his P&L % times goodwill booked. --capital balance after partner withdraws = original capital balance + asset reval + credited goodwill.

measurement basis of goodwill and GAAP balance

-- goodwill must be tested for impairment every year. -- it is recorded at historical cost assuming it is not impaired.

government wide financial statements vs governmental fund financial statements

-- government wide financial statements: 1. presented using the economic resources measurement focus using the full accrual basis of accounting, similar to commercial enterprises. -- governmental fund financial statements: 1. presented using the current resources measurement focus and modified accrual basis of accounting. government wide statement net position = governmental fund balance + Capital assets net of - Accum. deprec. - Non current liabilities + Service (internal service fund) net position + sales tax.

Modified accrual basis of accounting and current financial resources measurement focus are used in connection with what kind of funds?

-- governmental funds. -- example: GRaSPP 1. General 2. Special Revenue 3. Debt Service 4. Capital Projects 5. Permanent MAC-GRaSPP: Modified Accrual basis of accounting Current financial resources measurement focus Modified Accrual basis of accounting: recognizes revenues in the accounting period in which they become available and measurable, similar to cash method?. (i.e. collection period does not exceed 60 days after fiscal year-end.) -- GRaSPP funds do not record expenses but only expenditures. -- Note: expenses are those costs which are incurred to earn revenues whereas, expenditure is the cost which is spent on purchase or growth of fixed assets.

grant revenue

-- grant revenues are recognized as revenues in the year in which the monies are used.

sales discounts, gross and net methods example of sale of $100,000 terms of sale are 2/10, n/30.

-- gross method: date of sale: dr. AR 100,000 cr. sales 100,000 JE if payment is received within discount period: Dr. cash 98,000 Dr. sales discounts taken 2,000 Cr. AR 100,000 JE if payment not received within discount period: Dr. Cash 100,000 CR. AR 100,000 Net method: date of sale: dr. AR 98,000 Cr. Sales 98,000 JE if payment is received within discount period: Dr. Dr. Cash 98,000 Cr. AR 98,000 JE if payment not received within discount period: Dr. cash 100,000 Cr. discount not received 2,000 Cr. AR 98,000

equity investments

-- investments made in the equity (or stock) issued by another party. --The most appropriate fair value to use in the case of an equity investment traded in an active market is the quoted price for an identical investment.

gross method and net method (valuation of AR with discounts)

-- gross method: it records sale without regards to the available discount. If the payment is received within the discount period, a sales discount (contra-revenue) account is debited to reflect the sales discount. -- net method: records sales and AR net of the available discount. An adjustment is not needed if payment is received within the discount period. However, if payment is received after the discount period, a sale discount not taken account (revenue) must be credited.

exact method for new partner's capital balance

-- if X equals new partner's contribution and new partner's capital interest is 20% and old partners' total capital balance is $500, then X = 20% * ($500 + X).

translation (current) method

-- if a foreign subsidiary's local currency is the functional currency and the economy is not highly inflationary, then the translation (current) method is used to convert the financial statements of the foreign subsidiary from the local/functional currency to the reporting currency. -- under translation method, all income statement items are translated using the weighted-average exchange rate for the current year.

IFRS revaluation model

-- if an individual fixed asset is revalued, then the entire class of fixed assets to which that asset belongs must be revalued. Individual fixed assets cannot be revalued alone. -- further revaluation is necessary when carrying value of revalued fixed assets differs materially form fair value. -- revaluation gains are reported on other comprehensive income (OCI) -- revaluation losses are reported on the income statement.

bond held to maturity

-- if bond investment is classified as held to maturity, for both long and short term bonds, then it will be reported at amortized cost (CV), and not FV, unless there is a permanent decline in market value. -- unrealized gain/loss does not go on income statement nor OCI. Debt securities (bonds) classified as held-to-maturity are reported at amortized cost (that is, cost adjusted for amortization of premium or discount; approaches face value). Debt securities classified as available-for-sale are reported at fair value.

trading securities bond

-- if bonds are planned to be held for less than a year, it is classified as trading securities and they are reported at FV on BS.

nonmonetary exchange (realized gain, recognized gain (loss), boot)

-- if boot RECEIVED is less than 25% of the total consideration received, a proportional amount of the gain is recognized. A ratio (total boot received/total consideration received) is calculated, and that proportion of the total gain realized is recognized. -- realized gain = FV of asset received + cash received - cost -- recognized gain/loss or record into books if boot received is less than 25% of total consideration = realized gain * (boot received / total consideration received) -- value of asset received = value of asset given + gain - loss - boot/cash received -- under conservatism rule, losses are recognized in all nonmonetary exchanges when the BV exceeds FV of asset given up. -- asset's cash equivalent price = asset's FV. -- Assets should not be valued more than its FV, so when BV exceeds FV, the asset should be recored at the lower FV. When a loss is recorded, the asset received is recorded at the BV of the asset given up plus cash paid minus cash received minus loss recognized. -- in all nonmonetary transactions, the FV given is equal to FV received.

negative fund balance - unassigned

-- if expenditures incurred for specific purposes exceed the amounts restricted, committed, or assigned to those purposes, it may be necessary to report a negative unassigned fund balance.

intercompany bond transaction

-- if one member of consolidated group acquires an affiliate's debt from an outsider, the debt is considered to be "retired" and a gain/loss is recognized on the consolidated income statement. -- gain recorded on consolidation = parent's carrying amount on bond - retired amount -- retired amount = selling price of affiliate's bond from an outsider. -- the gain gets booked into retained earnings upon consolidation. -- if company purchased from third party an interco bond at premium (selling price > BV), the difference between bond carrying amounts in related companies in consolidation would be included as a decrease in retained earnings. Rule: When members of a consolidated group have intercompany bond holdings, the bonds are eliminated in consolidation and the difference (gain or loss) between the discounted issue price and the premium on reacquisition would be included in retained earnings. When intercompany bond is purchased at premium, there will be a loss and decrease retained earnings, and vice versa.

Exchange lacking commercial substance

-- if projected cash flows after the exchange are not expected to change significantly, then the exchange lacks commercial substance. -- If exchange lacks commercial substances, the following rules will apply. (Note: this method also must be used in any exchange in which fair values are not determinable, or if the exchange is made to facilitate sales to customers. i.e. exchange of inventory.) --- no boot received = no gain recognized --- if boot PAID is less than 25% of the total consideration, no gain is recognized. But, all realized losses are fully recognized. --- note: total consideration = boot/cash paid + FV of asset given up. -- In any exchange, all realized losses are fully recognized in accordance with the principle of conservatism. (Of course, theoretically, such losses should have already been recognized as part of the impairment process.) --- if boot RECEIVED is less than 25% of the total consideration received, a proportional amount of the gain realized from exchange is recognized. --- gain from boot of less than 25% = (FV of old - CV of old)*(Boot received / total consideration received). --- then CV of new asset = CV of old asset + gain - boot received. --- When boot RECEIVED/PAID equals or exceeds 25% of total consideration, BOTH parties account for the transaction as monetary exchange, and gains and losses are recognized in their entirety by both parties of the exchange. --- if a loss is indicated, the loss should be recognized. -- when exchanging assets with similar fair value, it is reasonable to assume that exchange lacks commercial substance. -- when a nonmonetary exchange lacks commercial substance, the general rule is that no gain/loss is recognized and the book value approach is used, unless you receive a boot/cash. -- realized gain from exchange = FV given up - BV given up. -- BV/CV of new asset when boot is received = carry value of old asset given up * (FV of new asset / total FV received) --- when no boot is received, no gain is recognized, then: Value of new asset = Carrying value of asset given up + cash + gain realized 90 -- FV of asset given up is presumed to have same FV of asset received. -- When a transaction involving a nonmonetary exchange lacks commercial substance, the reported amount of the nonmonetary asset surrendered is used to record the newly acquired asset. If the transaction has commercial substance, the FV approach is used.

repurchasing preferred stock

-- if the reacquisition price is less than original issue price, the "gain" is credited to APIC; -- if the reacquisition price is more than original issue price, the "loss" is debited to retained earnings.

deferred compensation arrangement

-- if the terms of a deferred compensation arrangement attribute all or a portion of expected future benefits to a period of service greater than one year, the cost of benefits should be recognized over that required period of service. -- example: if executive is hired in year 1 and contract promises payment of 100,000 in year 6,7, and 8, then the total of 300,000 would be expensed over five year period years 1 - 5.

property and equipment in governmental fund

-- property and equipment are not capitalized in governmental fund financial statements.

cash flow from investing activities

-- includes cash flows from the purchase and sale of non current assets. -- includes: 1. making/giving out loans to other entities. ex: purchasing a bond. 2. trading securities, available for sale securities, and held to maturity investment securities of other entities. (ex: cash proceeds from sale of investment of an entity; stock purchase.) 3. acquiring another entity under the acquisition method using cash. 4. sale and purchase of PPE. (proceeds and cost is used but not gains/losses from sale.) Proceeds = carrying value + gain - loss

support services: (NFP)

-- includes every expense not classified as program service. Indirect organization costs. examples: 1. fundraising 2. management and general (admin expenses) 3. membership development 4. promotional brochures

Summary of Significant Accounting Policies

-- includes/discloses the following: --- depreciation method. -- The summary of significant accounting policies is typically the first note provided after the financial statements and will include components such as: measurement bases, accounting principles and methods, criteria, and policies such as basis of consolidation, depreciation methods, revenue recognition, etc.

change in a government's pension liability that result from changes in actuarial assumptions are accounted for as deferred outflows and deferred inflows. The reduction in the liability is a deferred

-- inflow presented between liabilities and net position on the statement of net position.

installment note receivable balance at anytime

-- installment note receivable balance at anytime = PV of remaining monthly payments discounted at discount rate.

intangible assets amortized

-- intangible assets should be amortized over the lesser of the useful economic life or the legal life. -- useful economic life = approximate amount of time it will generate positive cash flows.

intangible asset with indefinite life - impairment loss

-- intangible with indefinite life is tested for impairment by comparing the FV to CV.

interco depreciation

-- interco depreciation should be decreased by the difference between the depreciation expense calculated by interco 1 and the depreciation that would have been calculated by interco 2 had 2 not sold the asset in an interco transaction. -- difference = depreciation expense after interco sale - depreciation expense if no interco sale.

interco inventory

-- interco inventory = inventory acquired from outsiders + intereco inventory - unrealized gross profit. -- unrealized profit in inventory = interco profit on inventory times % of inventory purchased still on hand. -- CV of shipment to interco is cost basis and shipment from interco is the revenue basis. -- interco profit% on inventory = (shipment from / shipment to) / shipment from.

intercompany payable

-- intercompany payable = sum of parent and sub receivables minus consolidated receivables. -- The intercompany receivable/payable due from parent to sub should equal the intercompany receivable from parent to sub.

capitalized interest on construction progress

-- interest costs related to construction projects may be capitalized, but only based on the weighted average of accumulated expenditures, not the amount of money borrowed. In addition, once the construction project is complete, interest may no longer be capitalized. -- interest to capitalize = sum of (construction in progress balances times interest rate for the period times months / 12)

interest expenditure (govt)

-- interest expenditure should be recorded when legally payable per the bond agreement, and not at fiscal year end date.

effective interest method

-- interest expense = principal * interest rate * fraction of year. -- next period balance = prior period balance - (prior period balance * interest rate)

exchange of non interest bearing note for a purchase commitment at a discount.

-- interest must be imputed (interest if it beared interest) on the non interest bearing note, which will result in recognition of a discount on the note receivable, and the purchase commitment must be recognized, which will result in recognition of a deferred charge. -- on date of exchange, discount on note receivable equal to face value minus PV of note AND deferred charge of same amount must be recognized/recorded. -- on date of exchange: Dr. Notes Receivable, Dr. Deferred charge, Cr. Cash, Cr. Discount on note receivable. (the future purchase discount is recorded by lowering NR by crediting "discount on note receivable" and Debiting Deferred charge) -- The note receivable will be reported on the BS as its PV (face value NR - discount). -- the discount on notes receivable will be amortized to interest revenue over the life of note using effective interest method. -- The deferred charge will reduce the amount paid for future purchases. -- at merchandise purchase date: Dr. merchandise inventory, Cr. Cash, Cr. deferred charge. -- discount resulting from determination of a note payable's present value should be reported on BS as a direct reduction from face amount of the note. Although the discount is separate account from the note payable account, the note payable is reported on BS at net of note payable face value less the unamortized discount.

interest revenue from leasing property

-- interest revenue = balance of lease receivable * interest rate * (m/12).

interest revenue from note receivable

-- interest revenue from note receivable accrues from the note date.

internal fund

-- internal fund accounts for the providing of goods or service by one department to other departments on a cost-reimbursement basis. e.g. municipal motor pools.

dollar value LIFO inventory cost

-- inventory is measured in dollars and is adjusted for changing price levels. -- dollar value LIFO inventory cost at a specific period equals sum of (annual cost indexes times annual increments (layers) of base year inventory costs) -- first layer = base year inventory cost / first index -- second layer = year 2 base year cost / second year index. and so on. -- annual cost index = end of year inventory cost divided by base year inventory cost = increase in price (level) -- end of year 2 base cost = beg. of year 1 base year cost + year 1 layer + year 2 layer. -- similar with current year cost. Steps: step 1. you need to deflate ending inventory of current prices. step 2. Find the difference in base prices between two periods. step 3. re-inflate the new layer step 4. add prior year layer to new layer to get dollar value LIFO.

option contract

-- is a derivative with no hedging designation that must be reported at fair value on the BS with unrealized gain/loss reported in net income. -- the fair value of option contract = time value of option + difference between market value of stock and exercise price of options. -- Gains (and losses) resulting from the change in fair value of derivatives not held (or issued) for hedging purposes should be recognized in net income in the period during which the fair value changes. To accomplish that, the derivative would be adjusted to its new fair value and a gain or loss recognized in current net income.

contingency

-- is an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) that will ultimately be determined when a future event occurs or fails to occur. The resolution may result in the acquisition of an asset, the reduction of a liability.

Funded status of pension plan

-- is equivalent to the fair value of plan assets - projected benefit obligation. -- if PA > PBO, then you have asset balance; or if pension plan is overfunded. If pension plan is overfunded by 10,000 then you have asset of 10,000. (it is reported as noncurrent asset in balance sheet) -- if PBO > PA, then you have liability balance; or if pension plan is underfunded. If pension plan is underfunded by 10,000 then you have liability of 10,000. (it is reported as noncurrent liability in balance sheet) (if it is underfunded and benefits payable next year is greater than FV of PA, then the excess of benefits payable next year over FV of PA is reported as current liability and remainder is noncurrent liability.) -- the funded status or defined benefit pension plan for a company should be reported in the statement of financial position AKA balance sheet. -- If a company has multiple defined benefit pension plans, the funded status of each plan is calculated/reported separately.

troubled debt restructuring (settlement of note payable with equipment i.e. non cash asset)

-- is one in which the creditor allows the debtor certain concessions (compromise) to improve likelihood of collection that would not be considered under normal circumstances. -- Concessions includes: - reduced interest rates - extension of maturity dates - reduction of Face amount of debt - reduction of amount of accrued interest. gain/loss on restructuring of payable under US GAAP = (CV of payable + unpaid accrued interest) - FV of asset transferred. gain/loss from transfer of real estate = FV of asset transferred - CV of asset transferred. -- total gain/loss from debt restructure = gain/loss from debt restructure + gain/loss from asset disposal for trouble debt restructuring involving only a modification of terms: gain/loss = carrying amount of debt - total future cash payments.

interest cost (pension)

-- is the interest on the projected benefit obligation. -- The increase in the PBO due to the passage of time.

contingent liability for discounted note receivable

-- is the maturity value.

Projected Benefit Obligation

-- is the present value of future retirement payments attributed to the pension benefit formula to employee services rendered prior to a date, based on current and past and (an assumption about) future compensation levels. The only difference between accumulated benefit obligation and the projected benefit obligation is the assumption of future compensation levels, The benefit obligation is used for most pension calculations. -- The PBO is the present value of an employee's pension. For a small business, the PBO will be an amount the company needs now in its pension plan to cover future pension obligations to its employees. ending PBO = beg PBO + (beg PBO * discount rate) + current year service costs - pension benefits paid during the year

Accumulated benefit obligation (pension)

-- is the present value of future retirement payments attributed to the pension benefit formula to employee services rendered prior to a date, based on current and past compensation levels.

simultaneous receipt and use of utilities

-- it is a form of contributed assets and not services. -- the NFP receiving the utilities (i.e. power service) would recognize the fair value of the contributed electricity as both revenue and expense in the period it is received.

foreign currency translation

-- it is the restatement of financial statements denominated in the functional currency to the reporting currency using appropriate rates of exchange. -- the gain/loss from translation is reported on other comprehensive income. -- seller (holder of receivable): as the dollar depreciates over foreign currency (i.e. less foreign currency equals a dollar), seller will recognize a gain. -- buyer (holder of payable): as the dollar depreciates over foreign currency (i.e. less foreign currency equals a dollar), buyer will recognize a loss.

when revenue is recognized over time for tax

-- it means there is deferred tax liability that decreases as it becomes current liability.

reporting sufficiency test

-- it requires that all reportable segments (looking at external sales only) have at least 75% of total external sales of the entire entity. -- if sum of all reportable segment from size test is less than 75% of total external sales, then add others to reportable segment list starting from highest external revenue until it's at least 75%.

leasehold improvments (amortize)

-- leasehold improvements are capitalized and then amortized over the lesser of the life of the improvements or the remaining term of the lease. i.e. over the period of expected benefit.

patents

-- legal fees to obtain the patent are capitalized as an intangible asset. Under U.S. GAAP, the research and development costs should be expensed. The patent will be capitalized and amortized over 10 years (the lesser of legal life or economic life). Current year amortization equals $1,700 ($34,000/10 x 6/12). The patent balance at year-end is $32,300 ($34,000 - $1,700). -- patents are amortized over its useful/economic life. (the lesser of legal life or economic life). -- when a patent is permanently impaired (i.e. patent is permanently withdrawn by governmental order), a loss equal to its carrying value should be recorded. -- under IFRS, development costs may be capitalized if certain criteria are met. If the patent has been granted, it is generally appropriate to capitalize the related design costs. -- successful legal defense costs to protect patent from infringement gets added to CV to be capitalized. (legal costs associated with unsuccessful on defending patent gets expensed immediately) -- The legal expenses associated with the unsuccessful patent outcomes are expensed immediately, but legal expenses associated with the successful outcomes would not be expensed, but instead be added to CV to be capitalized. -- the revaluation gain that is recognized to reverse the past revaluation loss is reported on the income statement. - revaluation loss occurs when FV < CV. -- The revaluation surplus (amount exceeding original CV) is recorded in OCI. -- amounts that go over original CV, gets recorded in OCI, and amount below original CV gets recorded in income statement. -- The capitalized costs of the patent include the purchase price of the patent, the VAT taxes, patent acquisition costs, and the legal costs to register the patent. VAT taxes (value added taxes) are similar to sales taxes. (NOTE: unsuccessfully defended patent cannot be capitalized) Research expenditures must be expensed under IFRS (and U.S. GAAP). Staff training and administrative salaries must also be expensed.

loan origination fee, income from loan ( interest income)

-- loan origination fees shall be deferred and recognized over the life of the loan as an adjustment of interest income (similar to the treatment of bond discount amortization). -- CY interest income from interest bearing note = (FV of loan - nonrefundable origination fee) X effective interest rate X (m/12). -- effective interest rate is rate for net amount loaned. -- net amount loaned = FV of loan - nonrefundable origination fee. -- effective interest rate = (i + origin fee) / (100% - origin fee)

FOB

-- means free on board, and it requires the seller to deliver goods to the location indicated at the seller's expense.

acquisition accounting

-- net assets acquired are based in FMV. -- FV of finished goods and merchandise inventory are based upon selling price less disposal costs and a reasonable profit allowance. -- in an acquisition, the net income of a newly acquired subsidiary will only be included in consolidated net income from the date of acquisition. SE = stockholders' equity NCI = noncontrolling interest Total consolidated stockholder's equity = parent's SE + End. noncontrolling interest of sub. End. NCI of sub = Beg. NCI + NCI share of net income - NCI share of dividends. Beg. non controlling interest of sub. = FV of sub's net assets * NCI% FV of sub = acquisition cost / parent owned % of sub Recognize a gain when acquiring a subsidiary with a Fair value less than fair value of 100% of sub's net assets -- gain from acquisition = (BV of net assets of sub - acquisition cost) + (FV - BV of sub net assets) Recognize gain/loss when an investor goes from non control to control of sub through a step acquisition, the previously held investment must be adjusted to fair value. The fair value adjustment is recognized as gain/loss by the investor in period of additional acquisition. -- gain from adjustment to fair value of assets: gain recognized = (fair value of sub*ownership%) - BV of sub BV of sub = initial investment acquisition price -- Gain from acquisition of 100% from zero. = BV of net assets + (FV of sub's assets - BV of sub's assets) - (fair value of sub + contingent consideration) fair value of sub = acquisition price -- treatment of dividends received from sub: - The dividend would be eliminated in consolidation. - It reduces NCI on consolidated BS because under equity method, the ending NCI = beg NCI + NCI share of sub income - NCI share of sub dividends. -- goodwill under acquisition method = Fair value of subsidiary - fair value of sub's net assets --- fair value of sub = purchase price / % acquired. -- in an acquisition method business combination: acquisition costs: registration and issuance costs are recorded as a direct reduction to the value of the stock issued by reducing APIC and direct out-of-pocket costs such as legal and consulting fees are expensed. -- acquisition cost of stock does not include any measure of the relocation costs associated with subsidiary HQ. -- consolidating workpaper elimination entry: Under the acquisition method, all balance sheet accounts must be adjusted to fair value on the acquisition date. If parent acquires subsidiary with assets that have FV > CV, then on consolidated statement, then asset needs to increase by the difference. (debited) -- In a consolidation, the entire stockholders' equity section of the subsidiary is eliminated. This applies to wholly owned as well as partially owned subsidiaries. -- When acquisition price exceeds FV of net assets acquired, assets and liabilities should be presented at FV. -- when exchanging stock for different stock, -- the investment in new company account = FV per share given up times per share given up. -- Common stock = Par value times number of shares, and -- APIC = (FV of stock given up - BV of stock given up) times # of shares given up. -- net assets acquired are based on FMV. FV of finished goods and merchandise inventory are based upon selling price less disposal costs and a reasonable profit allowance. (FV i.e. selling price). -- when subsidiary is acquired with acquisition cost that is less than FV of assets, following steps should be used: 1. BS is adjusted to FV, which creates negative balance in the acquisition account. 2. identifiable assets are recognized at FV, which increases the negative balance in the acquisition account. 3. The total negative balances in the acquisition account is recorded as a gain.

net carrying value of bond payable under IFRS (same for GAAP)

-- net carrying value of bond payable at issuance date = report bond payable at = Face Value of bond + premium of bond - discount of bond - bond issuance cost.

lower of cost or market value (US GAAP ONLY)

-- net carrying value of inventory using LCM = the middle value between market ceiling, market floor, and replacement cost. (rule of thumb.) -- market ceiling = selling price minus cost to complete and dispose. -- market floor = market ceiling value minus normal profit margin. -- normal profit margin = selling price times profit margin% -- replacement cost is usually given. The lower of cost or market rule states that a business must record the cost of inventory at whichever cost is lower - the original cost or its current market price. This situation typically arises when inventory has deteriorated, or has become obsolete, or market prices have declined. The rule is more likely to be applicable when a business has held inventory for a long time, since the passage of time can bring about the preceding conditions. The rule is set forth under the Generally Accepted Accounting Principles accounting framework. The "current market price" is defined as the current replacement cost of the inventory, as long as the market price does not exceed net realizable value; also, the market price shall not be less than the net realizable value, less the normal profit margin. Net realizable value is defined as the estimated selling price, minus estimated costs of completion and disposal.

components of the changes in the net assets available for benefits of a defined benefit pension plan trust:

-- net change in fair value of each significant class of investments. -- benefits paid to participants. -- contributions from the employer and participants. -- investment income and expense. -- administrative expenses to arrive at net increase or decrease in net assets available for benefits during the period. NOT part of components: -- The change in actuarial present value of accumulated plan benefits is shown on the statement of changes in accumulated plan benefits.

net receivable

-- net receivable = receivables - AFDA + claim against shipper for goods lost in transit before year end -- does not include unsold goods, inventory, security deposits -- ending bal of AFDA = beg bal. AFDA - accounts written off as uncollectible + uncollectible accounts recovery. -- adj. ending AR = unadj. ending AR - ending bal of AFDA. -- unrecoverable accounts recovery reverses amounts from accounts written off as uncollectible.

internal service fund

-- non reciprocal transfer would be reported in the internal service fund as a credit to "transfers".

FASB ASC 958

-- not-for-profit reporting guidance that primarily focuses on basic information for the organization as a whole. The standards establish guidance for general-purpose external financial statements provided by a NFP organization.

continuing operations

-- on income statement under "other" revenues and gains. -- e.g. sale of warehouse for more than its carrying value, would be part of continuing operations as other revenue and gains.

deferred income tax asset

-- only applicable to temporary differences -- future tax deductions -- non current asset

deferred income tax liability

-- only applicable to temporary differences -- future tax liability -- non current liability

Operating lease expense

-- operating lease expense must be recorded equally over the life of the lease. -- If free or reduced rent is part of the lease package, the lessee must take the total rent expense to be paid for the entire term of the lease and divide it evenly over each period. -- the rent expense is not the amount of cash paid in current year. -- Rent expense counts for the months from initial lease date to year end. JE on initial lease date: Dr. prepaid rent (for actual amount due for the year) Cr. Cash (same amount) JE for each months for payments up to annual prepaid amount: Dr. Rent Expense Cr. Prepaid Rent JE: for each months over the annual prepaid rent: Dr. rent expense Cr. rent payable

other operating revenue (hospital: NFP)

-- other operating revenues are those generated by operations other than patient services. -- donation of goods at fair value, that is part of the ongoing major operation of the hospital. -- examples: 1. sale of cafeteria meals 2. educational programs

Amortizing a bond discount:

-- over the life of the bond, the discount will be amortized and will cause interest revenue recorded to be greater than the cash received for interest. This occurs because cash received at maturity will be at face value even though the investment cost was lower. The excess of face value over actual cost of investment represents interest that must be recorded over the life of the bond rather than at maturity, according to GAAP. -- amortizing a bond discount increases the bond investment account. Dr. investment in bonds Cr. interest revenue. -- when sold before maturity, if proceeds is greater than book value of bond, it will create a gain on sale.

The three most generally used revenue classifications for a hospital are ?

-- patient services revenues, other operating revenues, and nonoperating revenues.

pension expense (govt)

-- pension expense includes the effect of changes in the employer's net pension liability (except for deferred outflows/inflows of resources). The government should recognize the effect of a change in benefits in pension expense immediately to the extent that a change is attributable to prior services and amortize the balance (deferred outflow) over the remaining service life of the affected individuals.

straight line method to amortize discount of bond

-- period amortization = premium/discount and bond issuance cost / # of periods bond is outstanding. -- CV of bond = FV - discount + (period amortization * # of years) -- there would be a difference in CV between straight line and Effective interest, during amortization, except last period since it is maturity date. -- initial purchase price = purchase price including interest - accrued interest receivable -- Discount = FV - initial PP -- periodic amortization = discount / useful life or = discount * (months amort. / total months of useful life) CV = PP including discount + amortization(interest) for the period.

income from exempt municipal bonds: perm or temp? taxable?

-- perm difference -- non taxable

insurance proceeds on death of officer: perm or temp? taxable?

-- perm difference -- non taxable

costs capitalized on plant assets: (property plant & equipment)

-- plant assets includes: machine used for manufacturing operations. -- any costs incurred to acquire and make ready a plant asset is capitalized: -- costs include all costs necessary to get the asset to its proper place, at the intended time and in condition for its intended use. -- capitalize costs that improve the quality, efficiency, or productivity of the fixed asset. ---insurance on machine while in transit. ---testing and preparation of machine for use. --- freight in, shipping charges --- installation charges --- sales and federal excise taxes --- present value of note payable --- cash paid as down payment -- all equipment costs must be incurred before depreciation of the equipments, therefore depreciation expense begins on the date of installation.

When a cash dividend is declared and the company has both cumulative preferred stock and common stock, which of the following must be paid first?

-- preferred stock is paid first and remainder is paid to common stockholders. -- when there is cumulative preferred stock, there is usually a % in front of cumulative, which is the % of par value of the shares that will be dividend payable to them preferred stockholders. The entry would be: Dr. Donated treasury stock at FMV Cr. APIC @ FMV if and when shares are reissued the entry would be: Dr. Cash @ FMV Dr. APIC (for sp < carrying value) Cr. Donated treasury stock (@ carrying value) APIC (for sp> carrying value)

common stock vs preferred stock for declared dividends

-- preferred stock ownership does not allow the investor to exercise influence, so the preferred stock investment is accounted for using the FV method and dividends received from preferred stock is recorded as dividend income on the IS.

amortize bond premium - effective interest method

-- premium amortized = interest paid - interest expense -- interest paid = FV of bond * stated rate -- interest expense for period = CV of bond * yield rate -- beg. unamortized premium = CV - FV -- people would pay more than face value for premium bond, because the stated rate is higher than market rate. -- proceeds from bond issuance/sale = sum of PV of principal + PV of interest payments -- for present value, market rate needs to be used. -- CV of bond = Beg. CV - premium amortized. premium amortized during the year = cash paid - interest expense. -- cash paid = FV * stated rate -- interest expense = CV - premium amortized. -- JE during issuance of bond premium: Dr. Cash Cr. Bond payable (FV) Cr. premium on bond (Diff) -- JE during payment due date : Dr. Amort Premium (Diff) Dr. interest expense (CV * market rate) Cr. Cash (FV of bond * stated rate) -- interest payable or cash paid = FV of bond * stated rate. -- this method follows accruals. -- for bond interest expense, the interest is incurred always for period that the bonds are outstanding. Payment dates are irrelevant for interest expense amounts here.

liability from coupon that are redeemed for toy (F5-21) Premiums

-- premiums are offers to customers for the purpose of stimulating sales. They are offered in return for coupons, box tops, labels, etc. -- year end liability from coupon redeemed for cash savings for customers = ((amount of coupons expected to be redeemed during the year * redemption rate) / coupons per toy) * (cost per toy - money received per toy redeemed) - amount paid to date. -- unearned revenue from coupons are earned when coupons are redeemed and cost of merchandise is matched with the recognition of revenue.

annuity (present value)

-- present value annuity = periodic payment times present value factor.

Imputing interest not required if

-- present value calculation at market rate of interest is not required for certain payables with low or no interest rate (i.e. note rate is lower than market rate) when those payables: 1. arise in the ordinary course of business (with customers or suppliers), the terms of which do not exceed approximately one year (short term notes). 2. are paid in property or services (not in cash). 3. represent security deposits 4. bear an interest rate determined by a government agency. 5. arise from transactions between a parent and its subsidiaries. -- when no interest is imputed., the note is recorded at face value.

bond settlement price

-- price the bond is retired/sold for.

prior year adjustments to income

-- prior year adjustment should be reported as an adjustment to the opening retained earnings, not on the current period income. So, if it was erroneously added/subtracted from income, it should be reversed.

stock dividend

-- receipt of stock dividends is not revenue. -- receiving stock dividend increases the number of shares held and decreases the cost basis per share. when stock dividend is declared: -- Dr. retained earnings and Cr. common stock by the same amount. Net effect to stockholders' equity is zero. -- small stock dividend (<20 - 25 %) at declaration Dr. retained earnings (@ FMV) Cr. Common stock (@ par value) Cr. APIC ( FMV - par value) large stock dividend (> 20 - 25%) at declaration: Dr. retained earnings (@ par value) Cr. common stock distributable at par value. -- For a small stock dividend (less than 20-25% of the shares outstanding previously) the fair value of the shares is capitalized from retained earnings. For a large stock dividend (more than 20-25% of the shares outstanding previously), only the amount legally required to be capitalized is transferred from retained earnings (typically the par value of the stock).

loss contingencies

-- recognition of contingent losses in the financial statements depends on the likelihood that future events will confirm the contingent loss. -- GAAP classifies the likelihood of contingent losses as follows: -- Probable: likely to occur. -- Reasonably possible: more than remote, but less than likely. (only footnote disclosure is required. and no amounts should not be accrued) -- if all amounts within a range of values are equally likely, then the lowest amount in the range should be accrued. -- when you see wording like probable, reasonably possible, think loss contingencies. -- Remote: slight chance of occurring. -- if liability is with recourse, then you are contingently liable for full amount and must report full amount in notes of financial statements. -- if contingency loss is probable and amount or range is estimable, then it should be recognized and accrued and disclosed in footnote.

recoverability test

-- recoverability test is only performed on intangible assets with limited life. The test compares undiscounted future cash flows to the CV of the asset. If the CV is greater, then a FV test would be performed. - assets that can be put to recoverability test: patents. -- the CV of fixed assets should be tested for recoverability at least annually or whenever events or changes in circumstances indicate the CV may not be recoverable.

deferred rent expense - operating lease

-- rent expense must be recognized on a straight line basis over the life of the lease. -- when lease rates fluctuate and when reduced rent is given, the average lease rate must be computed. i.e. total rent expense over life of lease. annual lease expense = total lease payments / lease years. -- deferred lease/rent expense = sum of lease expense - total lease payments until certain year end. expenses recorded during end of current year for utilizing office space under operating lease = current year rent paid (excluding prepaid rent) + amortization of improvements.

rent income

-- rent income is recorded when it is earned (accrual basis), not when the cash is received.

rent receivable: treatment for book and tax

-- rent receivable represents income earned but not yet received in cash. Taxes will be paid in the following year when the receivable is collected. -- when it increases, it increases deferred income tax liability.

rent revenue

-- rent revenue = rent collected for the year + annual amortization of rent fee nonrefundable

replacement costs

-- replacement costs are appropriate measure of FMV for raw materials inventory, but not finished goods.

refundable merchandise coupon

-- report these coupon transactions as unearned revenue at coupon sales price, because revenue is earned when coupons are redeemed and the cost of the merchandise is matched with the recognition of revenue. The transaction is recorded at cash received (coupon amount) because it is more objective than retail price of merchandise for which it it can be exchanged.

extraordinary item

-- represent events that are BOTH unusual and infrequent. -- items that are neither special nor extraordinary that requires payment is reported as an expenditure.

nonoperating revenues (hospitals)

-- represent incidental earnings not related to the ongoing and central operations of the hospital. -- examples: 1. gifts without donor restrictions

derived (non-exchange) tax revenue

-- represent taxes imposed on or derived from exchange transactions such as commercial sales.

warranty obligations: book and tax

-- represents expenses incurred but not yet paid. They will be deductible for tax purposes in subsequent years when actually paid. -- when it increases, it increases deferred tax asset.

appropriations

-- represents the total authorized expenditures for a current fiscal period. It is a budgetary account. -- it is recorded when the budget is formally integrated into the accounting system. -- remaining amount for use by county = appropriations remaining = beg. appropriations - encumbrances - expenditures. -- vouchers payable, alone, are excluded from this computation of available appropriations since the amount accrued is already included in expenditures.

revaluation surplus and impairment

-- revaluation gain is booked to OCI as revaluation surplus. -- revaluation gain = fair value or recoverable value - carrying value. -- Under IFRS, if a revalued asset becomes impaired, the impairment is recorded by first reducing any revaluation surplus to zero, with further impairment loss reported on the income statement.

gross revenue of NFP

-- revenue is recorded at gross amounts. Only refunds are netted against the revenue. -- example: when university assesses its students 3,000,000 and net realized value is 2,500,000; 400,000 were grants; 100,000 is tuition remission allowed to faculty members' children, journal entry is: Dr. cash 2,500,000 Dr. expense - scholarship 400,000 Dr. expense - tuition remission 100,000 Cr. Revneue - tuition and fee - 3,000,000

special revenue fund

-- revenues that are legally restricted or committed to expenditures for specified purposes. -- examples: money for repairs, money for certain activities i.e. law enforcement activities

Accounts Payable adjustment

-- reverse wrong entries in AP. -- reverse/addback unmailed checks.

cash conversion cycle

= days sales AR + days in inventory - days of AP outstanding. -- is a metric that expresses the time (measured in days) it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

partnership liquidation

-- sale of partnership -- involves realization of cash from the disposal of partnership assets. -- When a solvent partnership is dissolved and its assets are reduced to cash, the cash must be used to pay the partnership's liabilities in a specific order: 1. creditors/partner creditors. 2. noncreditor partners. -- distribution = capital balance + (gain/loss from disposal of assets * gain/loss%ratio) -- when a partner has negative capital, the other partners has to divide the deficiency (negative capital) (eg. F2Sim9 Q9.) -- when a partner has negative capital but have advance payment to partnership, when the partnership pays off that partner's advance, it increases that partner's capital balance.

sales revenue when it includes sales tax

-- sales revenue when it includes sales tax = sales revenue * (1+tax rate) -- debit entry to revenue account represents advance payments. -- sales tax payable = sales revenue * tax rate -- sale taxes due = sales tax payable - advance payments.

lessor - operating vs. sales-type

-- sales type classification can only be use when at least one of the finance lease criteria are met, if this is not met, then it is a operating lease to the lessor. -- direct financing classification cannot be used when the net present value (and absence of guaranteed residual value) of leased good is relatively low compared to the asset's fair value.

scrip dividend

-- scrip dividend are simply a special form of notes payable whereby a corporation commits to paying a dividend at some later date. Scrip dividends may be used when there is a cash shortage. On the date of declaration, retained earnings is debited and notes payable is credited. -- scrip dividends even bear interest from the declaration date to the date of payment (and thus require accrual).

serial bond

-- serial bonds are bonds that mature in installments. -- serial bonds in a particular bond issuance will NOT all mature on the same date, because they mature in installments.

service cost component of net periodic pension cost

-- service cost represents the increase in the projected benefit obligation resulting from employees' services rendered during the year. -- service cost is the present value of all pension benefits earned by company employees in the current year.

cash equivalents

-- short-term investments that have a maturity date no longer than three months from the date of purchase. -- items that are not CE: equity investments (stocks), A/R. -- recorded as Fair Value.

a lease that represents the acquisition of a general capital asset

-- should be accounted for in the same manner as a purchase and source of financing. -- the acquisition should be recorded in the fund acquiring the asset as both an expenditure and the financing as an increase in "other financing sources". -- when a lease agreement representing a contract that transfers ownership for equipment is entered during the year, the asset should be reported in governmental wide statement of net position as general capital asset.

NFP marketable equity securities (MES)

-- should be reported at fair value with gains and losses reported in the statement of activities. -- NFP reports MES at market value as of the balance sheet date. -- Investment income (dividends and interest) is reported in the period earned as an increase in net assets.

governmental defined contribution plan

-- should identify in the notes to financial statements the types of employees covered and the employer's and employee's obligations to contribute to the fund.

The Statement of Net Assets Available for Benefits

-- shows only the pension plan's net assets at the end of the year; it does not show how or why the plan's assets changed during the year (and interest income would be one cause of a plan's change in assets for the year.

The Statement of Changes in Accumulated Plan Benefits

-- shows the causes of changes in the actuarial present value of plan benefits to be paid to beneficiaries, but does not show the causes of the changes in the plan's net assets (of which interest income would be one). -- factors include effect of plan amendments, changes in actuarial assumptions, and benefits paid to beneficiaries.

what amount of uncollectible accounts expense (UAE) should be reported at year end?

-- similar question is how much does AFDA need to increase for the required estiamted allowance needed at year end? -- WHAT YOU NEED TO ANSWER QUESTION: you need year end bal. of AFDA before adjustment is made to match required provision of allowance.

cost of pension: general fund to pension fund

-- since the general fund bears the cost of funding the pension plan, routine employer contributions from the general fund to a pension trust fund are expenditures of the general fund. -- the governmental fund expenditure is the payments to the pension fund and not the amount paid to beneficiaries.

special items

-- special items are reported separately after revenues over expenditures. -- special items represent events that are either unusual or infrequent, where the event is in controlled by management. (e.g. the government; other significant management decision) -- not special items: 1. natural disaster

A derivative designated as a fair value hedge must be:

-- specifically identified to the hedge asset, liability or unrecognized firm commitment. -- expected to be highly effective in offsetting changes in fair value of hedged item and the effectiveness is assessed at least every 3 months. -- there is formal documentation of the hedging relationship between the derivative and the hedged item. -- hedged item presents exposure to changes in fair value that could affect income. This hedge is classified as a fair value hedge because it is being used to hedge the value of the inventory. Therefore, the gain on the fair value hedge must be recognized in earnings, along with the loss on the inventory, for a net decrease in net income of $300. They both affect net income and not OCI.

bond sold at a premium

-- stated rate > market rate. -- bond proceeds > face value. -- when a bond is issued, the price is computed as the sum of PV of future principal plus the PV of future periodic interest payments. Both cash flows are discounted at prevailing market rate of interest that has been adjusted to reflect how interest payments are made.

deferred tax expense

= deferred tax liability - deferred tax asset

amortize expense from intangible assets

-- the CV for both tangible and intangible assets held for use needs to be reviewed whenever events or changes in circumstances indicate that the CV may not be recoverable. -- The future cash flows expected to result from use of the asset and its eventual disposition need to be estiamted. -- If this sum of undiscounted expected (future) cash flows is less than the CV, an impairment loss or expense needs to be recognized. -- If its that anticipated that cash flow will be generated indefinitely at the current level, then there is no impairment and no amortization expense is recognized.

purchase of bond held to maturity including accrued interest

-- the CV of the bond = total amount paid - amount of accrued interest received. -- accrued interest is a receivable.

dividend revenue

-- the amount of revenue that should be reported in the investor's income statement for this year would be the portion of the dividends received this year that were not in excess of the investor's share of investee's undistributed earnings since the date of investment. -- under the fair value method, dividend revenue should be recognized to the extent of cumulative earnings since acquisition and return of capital beyond that point. -- dividend income = number of shares * dividend per share.

a company's income tax provision should be determined using the

-- the best, most current estimate of the annual effective tax rate.

crediting asset revaluation to partners

-- the change in asset value is allocated to partners before accounting for partners leaving and entering the partnership using the P&L partnership allocation.

a company's net periodic pension cost for the year would be reported on:

-- the company's income statement.

units of production depreciation method

-- the cost of a fixed asset is allocated to expense based on the number of units produced during the period relative to the total number of units expected to be produced over the asset's life. -- i.e. to use this method, the total number of units over the asset's life must be able to be estimated. -- reflects that an asset is subject to rapid obsolescence.

percentage of receivables method

-- the ending balance in the allowance account for uncollectible accounts is equal to the total estimated uncollectible amount. -- example: 3% of AR is determined to be uncollectible at year end. and AR = 3,000,000. and unadjusted allowance = 50,000 then to get to 90,000 (3,000,000 * .03) we need to add extra 40,000 to the allowance method at year end.

rent refundable security deposit

-- the entire refundable security deposit is recorded as refundable security deposit and does not take consideration of estimated costs taken out of the deposit for cleaning costs, etc. --If the tenant moves out at end of lease term, the deposit is taken into revenue and matched with cleaning costs and damage repair and/or refunded to the tenant. The deposit is not revenue upon receipt.

salvage value

-- the estimated value of a fixed asset at the end of its useful life -- salvage value is used in calculation of all depreciation methods except double declining balance. -- with all other methods, if salvage value is excluded, depreciation is overestimated and net income is understated.

Additional paid in capital

-- the excess of amounts paid in over the par or stated value

additional paid in capital

-- the excess of amounts paid in over the par or stated value. -- when outstanding stock is purchased, the prior APIC per share is used to reverse out APIC. Then remainder is debited to retained earnings. -- when stock is bought back at a price over the issued price: Dr. treasury stock [$ par * # of shares issued] Dr. APIC [$ original APIC/sh * # of shares bought] Dr. Retained earnings [plug] Cr. Cash [# of shares purchased * $price per share] -- when stock is bough back at a price less than issued price: APIC is decreased by [# of shares bought * $ per share of the lessor of issued price and purchase price] minus [par value per share * # of share purchased]

What happens when a company pays in common stock for receiving services performed?

-- the fair market value of the stock is used as value given. -- the billing rate (i.e. $ / hour) is similar to a list price and would be used for valuation purposes if no other information was available. -- the market value would be apportioned between par value of stock and APIC. The FMV in excess of par would go to APIC.

the account for the restricted portion of special tax should be in which fund?

-- the fund that accounts for the accumulation of resources for, and the payment of. -- if a fund gets money from long term debt, money is transferred from debt service fund and money needs to be paid back to debt service fund. so the account for the restricted portion of special tax should be in debt service fund in this case.

fund balance

-- the general fund is a governmental fund. -- When interest is paid using govt. fund, interest expenditure is increased and cash is decreased. -- the interest expenditure decreases fund balance on the general fund balance sheet, just as interest expense decreases the retained earnings of a commercial enterprise.

general fund

-- the general fund is created at the beginning of the governmental unit, and it exists throughout the life of that unit. The general fund accounts for the general activities of a government that are not accounted for by any other fund. the general fund is most likely to have a fund balance classified as nonspendable inventory of supplies. General fund will normally have supplies on had at the end of the period. -- general fund accounts for all financial resources except those required to be accounted for in another fund. If the state grant had been restricted for specified purposes, it would be accounted for in a special revenue fund. (ex: pension fund) -- examples of expenditures from general fund: 1. The fire department salaries would be paid out of the general fund, as this is a service of the city. The general fund records the salaries as Expenditures with a credit to salaries payable. Salaries are not usually encumbered, as they are a routine expenditure (financial outflow) of the department. Encumbrances represent commitments or assignments, not actual amounts payable.

lower-of-cost-or-net realizable value (LCNRV)

-- the inventory will be reported at lower of cost or net realizable value. -- net realizable value = selling price - costs to complete/sell/dispose. -- cost = value of inventory at cost basis i.e. FIFO, LIFO, etc. -- cost DOES NOT EQUAL REPLACEMENT COST in the context. -- the LCNRV will be different between using the total inventory and the individual inventory item methods. If total inventory is used then, you add up all the original costs together and all the net realizable values together and use the one that is lower. --- if individual inventory item is used, then use find the LCNRV for each inventory item and add them together. -- MUST BE USED FOR ALL INVENTORY UNDER IFRS. -- when value of inventory goes down during the year you Dr. expense and Cr. inventory. When value of inventory goes up during the year, you Dr. inventory and Cr. expense.

recourse

-- the legal right to demand compensation or payment.

leased equipment

-- the lessee will capitalize (due to transfer of title) and will incur both depreciation and interest expense. -- lessor will earn and book interest income when the payments are received from lessee. -- Lessee will remove the asset from its books at the inception of the lease and will not depreciate the asset.

line of credit

-- the maximum amount of money a creditor will allow a credit user to borrow. -- if line of credit matures in a year, then credit "Drawn" is a current liability.

additional paid in capital (additional contributed capital)

-- the portion of the cash proceeds above par value. -- Rule: assets contributed by a partnership (or sole proprietorship) to a corporation in its formation are valued at the assets FMV, less any related liabilities assumed by the corporation. Stock issued is credited at par value and any difference is credited to APIC. -- APIC = FMV Net Assets of corporation minus Par value Common Stock.

lumpsum purchase and reporting cost of each asset

-- the purchase price must be allocated among all the assets purchased in the lumpsum based on the portion of the total fair value for the basket that each asset represent. (i.e. pro rata for fair value of all assets in lumpsum purchase) -- total purchase price to be assigned to each assets should also include the appraisal cost.

foreign currency remeasurement

-- the restatement of foreign financial statements from the foreign currency to functional currency . -- the resulting gain or loss on remeasurement is reported in the consolidated income statement. It it classified as part of continuing operations.

cosigned goods

-- the seller (cosignor) delivers goods to an agent (cosignee) to hold and sell on the cosignor's behalf. The cosignor should include the cosigned goods in its inventory because the title and risk of loss is retained by the cosignor even though the cosignee possesses the goods. -- revenue will be recognized when the goods are sold to a third party and not to the cosignee. Until the sale to third party, the goods remain in the cosignor's inventory. -- Title passes directly to the third-party buyer (not to the cosignee and then to the third party buyer) at the point of sale. Rule: Consignor includes consigned goods in the hands of the consignee (potential buyer) at consignor's cost plus shipping costs to ship goods to the consignee. -- While an agent (consignee) will hold and sell goods on behalf of the consignor, until the inventory is sold, the seller (consignor) will include in his/her inventory because title and risk of loss are retained by the consignor. -- When the goods are sold to a third party, then the consignor will include them in COGS. example: note: to be reimbursed expenses are still expensed. Revenue is recognized when the goods are sold to a third party. Until the sale, the goods remain in the consigner's inventory. Freight is a cost of inventory and expensed when inventory is sold. Commissions and advertising are expenses. Net sales$ 80,000 Cost of sales (2/3 × $72,000)(48,000) Freight (2/3 × $7,500)(5,000) Commissions (10% × $80,000)(8,000) Advertising(4,500) Net Profit$ 14,500

net assets with donor restrictions

-- these are restricted cash and non-current asset. -- donor restricted in perpetuity are non-current. ex: principal that are restricted from use by the donor. -- note: when donor designates income from principal (interest income) to a program, it goes to cash without donor restrictions and a current asset when the donor's conditions are met. -- pledged contribution has implied time restriction and should be included in revenue with donor restrictions. -- conditional contribution, where the conditions are not met yet, should be recorded as refundable advance and not revenue. -- conditional pledges should not be recorded until all conditions are satisfied.

market price of bond

-- to determine market price of a bond, PV of principal is added to PV of all interest payments, using market interest rate. The market value of a bond issued at a discount (or a premium) is the present value of two cash flows. The present value of the principal amount, plus, The present value of all future interest payments, Both at the market (effective) rate of interest.

Annuities

-- transactions that result in identical periodic payments or receipts at regular intervals.

translation gain/loss

-- translation adjustments are not included in determining net income but are disclosed and accumulated as component of other comprehensive income in consolidated equity until sale, or until liquidation of the investment takes place. -- all income statement items are translated at the weighted-average exchange rate for the period under the translation method.

Percentage of Accounts Receivable at year-end method (Balance sheet approach)

-- uncollectible accounts may also be estimated as a certain percentage of a/r at year end. -- THE AMOUNT CALCULATED IS THE ENDING BALANCE that should be in the AFDA on BS at year end. Therefore, the difference between the unadjusted balance and the desired ending balance is debited (or credited) to the bad debt expense account.

unconditional pledges collected over more than one year

-- unconditional pledges that will be collected over more than one year should be reported as pledges receivable, valued at their present values. -- also recognized as support with donor restrictions at present value.

amortization period

-- under GAAP, it is the period over which to amortize a bond premium or discount and bond issuance costs is the period that the bonds are outstanding (i.e. from the date the bonds are sold). In general, US GAAP amortization is done over the contractual life of the bond.

accumulated other comprehensive income under GAAP (defined benefit pension)

-- under GAAP, unrecognized prior service cost, unrecognized transition obligations and unrecognized net gains and losses must be reported in accumulated other comprehensive income until recognized as a component of net periodic pension cost through amortization, which then will affect retained earnings. -- Unrecognized prior service cost, transition obligations and net losses all increase net periodic pension cost when recognized and are therefore recorded as a debit to accumulated OCI. -- Unrecognized transition assets and net gains decrease net periodic pension cost when recognized and are therefore recorded as a credit to accumulated OCI. -- net unrealized gain/loss from pension goes to accumulated other comprehensive income.

consolidate a Special Purpose Entity (SPE)

-- under IFRS, a sponsoring company must consolidate an SPE if it controls the SPE. Control exists when the sponsoring company is benefited by the SPE's activities, has decision making powers that allow it to benefit from the SPE, absorbs the risk and rewards of the SPE, and has a residual interest on the SPE.

Decommissioning liability

-- under IFRS, an asset retirement obligation is called decommissioning liability. -- Any change in the value of the liability after the property has been fully depreciated will be recognized in profit or loss.

exchange of dissimilar assets

-- under IFRS, exchanges of dissimilar assets are regarded as exchanges that generate revenue and all gains and losses are recognized. -- a loss equals to the cash given up. -- you record asset received at fair value and anything above that amount you pay becomes recorded as a loss.

Goodwill/intangible adjustment under IFRS

-- under IFRS, goodwill impairment is calculated by using a one-step test at the cash generating unit level in which the carrying value of cash generating unit (CGU) is compared to the cash generating unit's recoverable amount. -- impairment loss = CV of CGU - recoverable amount of CGU. -- CV of CGU = CV of all assets except for goodwill. -- recoverable CGU amount = the greater of the CGU's FV less cost to sell AND its value in use i.e. PV of future cash flows expected from the CGU. -- when impairment loss is allocated to goodwill, goodwill decreases. -- the impairment loss is first allocated to goodwill and deceases it. Any remaining impairment loss would be allocated pro rata basis to the other assets of the cash-generating unit. -- A company will perform impairment analysis and record necessary entries on all assets of the company prior to performing impairment analysis related to goodwill. Reporting units (segments) will be separately tested for impairment analysis. If the fair value of a reporting unit is less than the carrying value, the impairment is assumed to be due to the goodwill as all other assets of reporting unit would already have been properly adjusted.

prior service cost (pension)

-- under IFRS, past service cost will be reflected in the financial statements for the year of the plan amendment. -- when prior service cost increases in beginning of year, it will be amortized at year end by average remaining service life of employees. when prior service costs increase: Dr. OCI and Cr. pension plan asset/liability when amortizing prior service cost during the year: Dr. net periodic pension cost and Cr. OCI.

revaluation gain and losses

-- under IFRS, revaluation gains and losses are calculated as the difference between fair value and carrying value (cost - accumulated depreciation) of the revalued assets on the revaluation date. -- This gain is reported in other comprehensive income. -- revaluation losses are reported on income statement. -- Under IFRS, the reversal of a revaluation is recognized in profit or loss. But, the amount from the reversal that exceeds original value goes to other comprehensive income. --- example: in year 1 you purchase land for 100,000 and end of year 1 value goes to 90,000 and end of year 2 it goes to 105,000. Then at end of year 2, you report 10,000 to profit or loss and 5,000 to OCI. example 2: for revaluation loss: year 1: asset of CV of 68,000 is revalued to FV of 80,000 year 2: before amortization, it is revalued to 63,000. at end of year 2: loss of 5,000 goes to income statement and 12,000 loss goes to OCI.

DTL an DTA

-- under US GAAP, DTL and DTA should be classified and reported as a non-current amount on the balance sheet. -- this treatment aligns with IFRS. -- all DTL and DTA must be offset (netted) and presented as one amount (a net non-current asset or net non-current liability), unless the DTL and DTA are attributable to different tax-paying components of the entity or to different tax jurisdiction.

testing for impairment

-- under US GAAP, first step in determining if a long lived asset is impaired is to compare the carrying amount of the asset to the undiscounted (i.e. not the present value) expected future cash flows from the asset. - if CV > undiscounted future cash flows, there's impairment loss. - impairment loss under GAAP = CV - FV. under GAAP, long lived asset is impaired if 2 of following are true. 1. the CV > FV 2. and that CV difference is not recoverable -- under IFRS, impairment exists when CV > recoverable amount. - recoverable amount = greater of asset's FV less costs to sell AND asset's value in use (i.e. present value of future cash flows) - impairment loss under IFRS = CV - recoverable amount. --- impairment test on fixed assets held for use and to be disposed of: begins with recoverability test, in which the sum of undiscounted future cash flows is compared with the CV. If the UFCF is less than CV, then an impairment would be calculated as CV - FV.

impairment loss

-- under US GAAP, subsequent reversal of intangible asset impairment losses is prohibited unless the intangible asset is held for sale. -- when FV is less than CV, a loss on impairment is booked on IS and reduction in goodwill is booked to BS. -- if CV > FV and CV is not recoverable, then long lived fixed asset impaired. -- impairment loss = carrying value - recoverable amount - revaluation surplus. -- impairment loss goes on the income statement. -- is recoverable value same as FV? -- impairment loss = CV - FV --- under GAAP long lived assets that are impaired can only have their CV restored if they are held for disposal/sale. (under IFRS reversing impairment loss is permitted).

bad check received (cash to accrual)

-- under accrual when you received a bad check, you debit A/R and credit cash.

retiring partner

-- under bonus method, when retiring partner's interest exceeds his capital balance, that amount (premium paid) reduces capital balance of remaining partners according to P&L % ratio.

stock dividend under equity method

-- under equity method, if you receive stock dividend, you should have memorandum entry that reduces the unit cost of all that company's stock owned. the investment will simply be spread over a larger amount of shares, thereby reducing the unit cost of all stock owned in that company. -- the receiver of stock dividend, his ownership % does not change, because when a stock dividend is given, it is given to every owner of the company, so your % of ownership stays the same. e.g. if 10% stock dividend is given, 10% additional stock is given to every owner.

convertible bonds and diluted EPS

-- under straight line amortization, the interest expense net of tax equals to the interest payment of [[face value of the bonds * stated rate] + annual discount amortization] * (1 - tax rate)

exception of expenditures being recognized when incurred

-- under the modified accrual basis of accounting, expenditures are generally recognized when incurred because that is when they become measurable. An exception to this general rule is the treatment of interest and principal payments for long term debt. Interest and principal of long term debt are recorded when they become legally due and payable, not at interim dates (e.g. year end).

when consolidated financial statements need to be made

-- under the voting interest model, consolidated financial statements are prepared when a parent-subsidiary relationship has been formed. An investor is considered to have parent status when control over an investee is established or more than 50% of the voting stock of the investee has been acquired. -- consolidated financial statements should only be prepared by the parent company. -- in consolidated financial statements, only the parent's retained earnings will be reported. -- Reporting consolidated financial statements is consistent with the concept that the economic entity can be identified with a unit of accountability. Consolidated financial statements are prepared in recognition of the accounting concept of economic entity.

unearned revenue: book to tax

-- unearned revenue is revenue for book but for tax purposes it is income when received. - i.e. rent income received in advance. -- added to book to get to tax income.

measurement basis for stocks (equity)

-- unless we own 50% or more of stock (equity method), stock held is measured in fair value. -- unrealized gain/loss = (fair value - cost value)*# of stocks. -- for principal market, take stock price of principal market times number of shares for balance sheet balance.

unrealized gain (loss) on selling bonds: trading vs. available for sale debt.

-- unrealized gain (loss) for Traded bonds are recorded in income statement, but for bonds Available for sale are recorded in OCI, until realized. -- For AFS bonds, when FV < BV at year end, the cumulative unrealized gain/loss must equal the current year unrealized gain/loss under accumulated other comprehensive income on its statement of stockholder's equity, so if there was previously an unrealized loss, and FV decreases again next year end, then the AOCI increases by excess of CY unrealized gain/loss over current AOCI. -- unrealized gain/loss = FV at EOY - FV at BOY.

unrealized interco profit eliminated

-- unrealized interco profit eliminated = consolidated inventory - sum of parent and sub inventories.

LIFO layers

-- uses layers of base year values of inventory by LIFO.

recording cost of land

-- value of land includes cost of land, cost to raze land, minus money received from sale of scrap materials from razing/demolishing old building to make room for new building. -- cost of land and building should be allocated separately. -- includes removal of old building's adjusted basis. -- DOES NOT INCLUDE THE FOLLOWING: ---excavation for construction of basement or part of building. i.e. costs for construction of part of building. --- interest on loan to purchase land. This should be expensed when incurred. Interest should only be capitalized with a "discrete manufacturing activity" i.e. equipment. hence not on land. --- debt issuance cost: are presented on balance sheet as a direct carrying value amount of the bond and should not be included in the cost of the land.

vesting vacation and sick days

-- vesting vacation or sick days means to get rid of those days in return for cash from employer. -- compensated absences are paid absences from employment that can relate to vacation, holidays, or sick days. Liabilities related to these future absences are accrued in the year earned if all of the following conditions are met: 1. the employer's obligation to compensate employees for future absences is attributable to services already rendered by the employees. 2. the obligation relates to rights that vest (are not contingent on an employee's future service) or accumulate (may be carried forward to one or more accounting periods subsequent to that in which earned). 3. Payment of the compensation is probable. 4. The amount can be reasonably estimated. If only the first three conditions are met, disclosure in a note to the financial statements is adequate. -- compensation is accrued for sick pays only if they are vesting sick pays.

voucher payable

-- voucher payable is credited when expenditures are incurred not when purchase orders are issued. Issuance of purchase order results in an encumbrance.

when a depreciable asset is purchased for more than its FMV

-- when a depreciable asset is purchased for more than its FMV, remember deprecation calculation should be based on FMV less salvage value and not total cash payments.

statement of activity (IS) for NFP

-- when a donor restriction that is temporary in nature is satisfied, a reclassification is shown on the statement of activity by decreasing net assets with donor restrictions and increasing net assets without donor restrictions. -- purpose of statement of activity is to report revenue and expenses, gains and losses, and reclassification between classes of net assets that produce the change in net assets for the period in total and for each applicable classification of net assets (either with or without donor restrictions).

asset exchanged for money (sold)

-- when a fixed asset is sold (voluntarily or involuntarily), gain or loss is recognized as part of income from continuing operations. -- gain/loss = proceeds from sale - CV of asset sold - costs associated with transaction.

bonus credited to partners (bonus method)

-- when a new partner is added and his contribution is higher than his capital account balance, that difference is credited to other partners as a bonus. I.e. new partner's investment (contribution) will not equal his capital account. -- bonus capital for a partner should NEVER be added to unidentifiable asset (debited). It will just be reported as bonus to partner receiving more capital account balance than his contribution to partnership. -- The Old partners' OLD profit and loss ratio would be used to allocate the bonus. --bonus paid has the same impact as additional net income and is share in old p&l ratio rather than capital ratio. -- the bonus method increases (or decreases) the individual partners accounts without changing total net assets of the partnership. -- when a leaving partner receives cash bonus in addition to his final capital position, it is paid by remaining partners using their old P&L ratios. (remaining percentages should be added to represent 100% of the bonus) -- asset reval credited to partner = P&L% times change in asset value. --the leaving partner receives cash equal to his ending capital adjusted for any reevaluation of assets + bonuses. -- capital balance of partner after someone leaving partnership = ending capital bal + change in asset valuation - bonus paid.

exchange with commercial substance

-- when a nonmonetary transaction has commercial substance, meaning that the amount and timing of future cash flows changes as a result of this exchange, gains and losses are recognized immediately based on the difference between the Fair value and the books value of the asset given up. -- gain/loss = FV asset given up - BV asset given up. -- the balance of the asset received should be recorded at fair value of asset surrendered or received, whichever is more evident. (note: book value of an asset in exchange should not be used as an approximation for FV.)

permanent impairment

-- when a permanent impairment has occurs, the BV is reduced by the loss with a credit to accumulated depreciation. Depreciation of the remaining BV is taken over the remaining life.

permanent impairment of depreciable asset

-- when a permanent impairment occurs, the book value is reduced and a loss is recorded. The loss is credited to accumulated deprecation. In addition, the current year's depreciation expense should be added. The new book value is depreciated over the new life.

carrying amount from nonmonetary transaction with commercial substance.

-- when an asset is replaced, the net effect on carrying amount of the asset = cost of replaced asset - CV of old asset. -- The CV of replacement property = FV of payment paid for it. -- When a fixed asset is sold (voluntarily or involuntarily) gain or loss is recognized (proceeds vs. carrying amount) as part of income from operations.

stock options and compensation expense

-- when company grants stock options, it calculates compensation expense on the grant date and recognize this expense over the service/vesting period (period of when option can be exercised i.e. exercisable date, and not the expire date). compensation expense from stock option = fair value of compensation / vesting period -- compensation expense relative to stock options is recognized regardless of whether the option is exercised. -- the total compensation expense = fair value of option at granted date. -- as a result of grant and exercise of stock options: at granted date: Dr. compensation expense Cr. APIC - stock options at exercise date: Dr. Cash (exercise price * # of options used) Dr. APIC - stock options Cr. common stock (@ par) Cr. APIC (plug = apic stock options + amount paid excess of par)

how is time restricted contribution recorded when receive?

-- when contribution is received in year 1 but donor restricts its use until year 2, it is recorded as revenue in year 1, and it will be classified as contributions with donor restrictions and an increase in net assets with donor restrictions until the time period for restriction has passed.

inventory

-- when ending inventory is understated, then naturally, cost of goods sold is overstated, which results in an understatement of net income and retained earnings. -- inventoriable costs include any costs required to get an inventory item in a state where it is ready to be sold. For manufactured inventory, this would include cost of raw materials, direct labor, and factory overhead. -- inventory costs does not include periodic costs such as: advertising, marketing and salaries. These period costs are reported as selling, general, and administrative expenses in Income Statement.

property dividend

-- when property dividend is declared: Dr. Retained earnings and Cr. dividend liability at fair value of property at date of declaration. -- The cost of asset will be adjusted to FMV (difference is treated as "gain or loss on disposal of asset") when a property dividend is declared.

commission expense

-- when staff are paid in advance and advances are charged to commission expense, the actual commission expense account at year end should be the actual commission expense depending on % of net sales or some other factor.

cash dividends in consolidated financial statements

-- when subs declare and pay dividends, the only amounts that should appear in their year end consolidated financial statements are the dividends paid to outsiders or external parties.

revenue recognized when (government)

-- when the revenue is available and measurable. -- revenue and expense items: 1. property taxes 2. licenses and permits fees 3. intergovernmental revenues 4. purchase of fixed assets (expenditure) 5. salaries and wages

Exceptions to not consolidating a majority owned subsidiary

-- when the subsidiary is in legal reorganization --- or bankruptcy and/or the subsidiary operates under severe foreign currency exchange restrictions, controls or other governmentally imposed uncertainties so severe that they cast significant doubt on the parent's ability to control the subsidiary.

discounted note

-- when you discount (calculate PV) a note, and receive from note receivable before maturity, your proceeds = FV - discount. -- discount = FV of note X discount rate X (m/12). -- m = months remaining to maturity.

measurement basis of land under US GAAP

-- whether land is used as investment or used as operations, it is reported at historical cost. Cost of land includes all costs necessary to put it in the place and condition for construction of the building: includes: purchase price of land Cost to raze old building Legal fees for purchase contract and to record ownership Title guaranty insurance Less proceeds from sales of salvaged materials.

consolidated financials: retained earnings, balance sheet, income statement

-- you must consolidate if parent owns 50% or more of subsidiary. If a parent owns less than 50% of sub, then that sub should not be included in consolidated financial statement of parent. -- sub's assets should be adjusted to fair value at year end. Parent's keep CV. -- interco companies must eliminate 100% of interco assets, liabilities, income and expenses, if parent has "control" over sub. If parent owns less than 50% or does not have significant influence, the parent should include amounts from sub that is not controlled. -- Rule: 100 percent of all intercompany balances among members of the consolidated group are eliminated. -- dividends paid by subsidiaries are 100% eliminated in consolidation, even when the parent owns less than 100% of subsidiary. This is done because they lack the criteria of being "arm's length." -- All intercompany transactions, including loans and advances, and all other balance sheet and income statement items should be eliminated upon consolidation. -- intercompany sales = sum of revenue of parent and subsidiaries minus consolidated revenue. -- consolidated revenue should not have intercompany sales. -- zero gain should be recognized when a member of a consolidated group sells stock to another member in same consolidated group, because that is treated as a treasury stock. This follows theory of consolidated statement presenting one economic entity. You cannot make money selling stock to yourself. -- Intercompany sales and cost of goods sold must be eliminated before consolidated financial statements are prepared (which will be prepared since Tulip Co. owns more than 50% of Daisy Co.). In addition, the profit that results from intercompany sales (if any) must be eliminated from ending inventory (if the inventory bought from the related company is still on hand at the end of the year) or the cost of goods sold of the purchasing entity (if the inventory bought from the related company has been sold to third parties by the end of the year). The following journal entries explain the transactions.

interest expense

--- items reported as interest expense: --imputed interest on non interest bearing note. -- amortization of discount of a bond. --- items NOT REPORTED as interest expense: -- interest incurred to finance construction of machinery for own se is capitalized as part of cost of the machinery. -- post retirement healthcare benefit interest is part of post retirement benefit expense. -- pension cost interest is a component of pension plan expense. -- Interest incurred to finance software developed for internal use is capitalized as a component of computer software development costs. -- Pension plan interest is reported as a component of net periodic pension cost. -- Deferred compensation plan interest is reported as a component of deferred compensation plan expense.

FV of subsidiary under acquisition method

--Under GAAP: FV of subsidiary = acquisition cost + NCI at FV. -- Acquisition price = % acquired by new parent times FV of sub. -- NCI = non-controlling interest. -- NCI = FV of sub * NCI % -- acquisition price paid by buyer of stock is calculated on the date the acquisition is FINALIZED and NOT when acquisition is announced. UNDER IFRS: partial goodwill method: -- NCI = FV of sub Net assets * NCI %. -- Goodwill = acquisition cost - (FV of sub Net assets times %ownership) FV of sub Net assets = BV of assets + assets FV adjustment + FV of identifiable intangibles examples of identifiable intangibles: -- noncompete agreement

WASO - weighted average common shares outstanding - WACSO

--Weighted average shares outstanding refers to the number of shares of a company calculated after adjusting for changes in the share capital over a reporting period. The number of shares of a company outstanding is not constant and may change at various times throughout the year, due to a share buyback, new issues, conversion, etc. The number of weighted average shares outstanding is used in calculating metrics such as Earnings per Share (EPS) in order to provide a fair view of a company's financial condition. WASO = sum of [# of shares CS outstanding during period of the year * (months / 12)] -- stock dividends and stock splits is treated as if it happened in beginning of the year.

moving average method

--a new average is computed after each purchase and issues/sale, by dividing the cost of goods available for sale by the units on hand. -- amount of inventory to be reported in BS = total cost value in inventory remaining.

how changes in numerator and denominator affects the ratio

--if ratio is below one, and num and den increases by same amount, then it will increase ratio. (vice versa).

operating cycle

--indicates the number of days between acquisition of inventory and realization of cash from selling the inventory. -- smaller, the quicker realization of cash from sale, the better.

prior service costs from pensions

1. Not included in income statement but in OCI statement.

completed contract methods

1. Revenue and gross profit are recognized when the contract is completed. (not when progress billings are collected or when they exceed recorded costs) 2. IF there is expected loss for a contract, it is recognized immediately in their entirety for both methods percentage of completion and completed contract method. (as conservatism). 3. Estiamted loss = contract price - costs incurred to date - estimated costs to complete. 4. gross profit recognized at year of completion = contract price - total actual costs incurred.

Under IFRS, what are the disclosure requirements related to correction of material prior period error?

1. amount of correction at beginning of the earliest period presented. 2. the impact of the correction on basic and diluted earnings per share for each period presented is a disclosure under IFRS when a material prior period error is being reported. 3. Under IFRS, the nature error must be disclosed where there is a correction of a material prior period error. Following are not requirements:1. IFRS does not require a description of internal controls put in place to prevent the occurrence of error in future periods.

other comprehensive income

1. items included: pension adjustments, unrealized gain/loss, foreign currency items, effective portion of cash flow hedges (PUFE), gain/loss foreign translation -- Other comprehensive income is shown on a company's balance sheet. It is similar to retained earnings, which is impacted by net income, except it includes those items that are excluded from net income. This helps reduce the volatility of net income as the value of unrealized gains/losses moves up and down. -- According to accounting standards, other comprehensive income cannot be reported as part of a company's net income and cannot be included in its income statement. Instead, the figures are reported as accumulated other comprehensive income under shareholders' equity on the company's balance sheet. Only unrealized items can be claimed as other income. Once the transaction has been realized (e.g., the company's investments have been sold), it must be removed from the company's balance sheet and recognized as a realized gain/loss on the income statement.

going concern

1. an entity is considered to be a going concern if it is reasonably expected to remain in existence and to be able to settle all its obligations for the foreseeable future. 2. Management is required to evaluate whether there is substantial doubt about an entity's ability to continue as going concern within one year after the date that the financial statements are issued. 2a. Under US GAAP, substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events indicate it is probable that the entity will not be able to meet its obligations as they come due within one year from the date the financial statements are ISSUED. (as opposed to date stated on the balance sheet). 3. US GAAP provides guidance on liquidation basis of accounting; BUT IFRS DOES NOT offer guidance on liquidation basis of accounting. (IFRS DOES NOT specify the basis of accounting to be used by an entity for which there exists substantial doubt about its ability to continue as a going concern.) 4. additional footnote disclosures include management's evaluation of the significance of conditions causing substantial doubt of entity's ability to continue as a going concern AND a description of management's plans that alleviated the substantial doubt.

A county issued $5,000,000 of general obligation bonds at 101 to finance a capital project. The $50,000 premium was to be used for payment of principal and interest. This transaction should be accounted for in the:

1. capital projects funds for the proceeds net of premium 2. debt service funds for the premium 3. governmental activities column of the governmental wide statement of net position as assets and liabilities.

General purpose of financial reports include

1. claims against the entity. 2. resources of the entity. 3. how effectively and efficiently the entity's management and governing board have discharged their responsibilities to use the entity's resources.

loss from discontinued operations

1. comes after income from continuing operations. 2. report net of tax. (amount * (1 - tax rate)). 3. includes loss from discontinued operations plus impairment loss (happens when carrying value of assets is greater than its FMV) that is classified as held for sale (which happens in the year when the sell of component of business was committed) or is disposed. It also includes additional loss from correction of impairment loss in the future.1. the loss from discontinued operations for the year includes loss before decision to dispose is made and loss after til end of fiscal year. -- gain/loss from discontinued operations = gain/loss on disposal of component + impairment loss + operating gain/loss during the year. -- impairment loss = carrying value of asset - fair value of asset. Note: (happens when carrying value of assets is greater than its FMV) that is classified as held for sale (which happens in the year when the sell of component of business was committed) or is disposed.

Criteria to be met for disclosure of vulnerability to concentration be required.

1. concentration exists as of the financial statement date. 2. concentration makes the entity vulnerable to the risk of near term severe impact. 3. it is at least reasonably possible that the events that could cause a severe impact from the vulnerability will occur in the near term.

Progress Billings

1. contra asset account to "Construction in Progress" 2. A progress billing is an invoice that is intended to obtain payment from a customer for that portion of a project that has been completed to date. These billings are commonly issued when a project has a long duration, so that the contractor can obtain sufficient funding to support its operations in the interim. Progress billings are especially common in the construction industry, where projects could last for more than a year.

Error correction (prior period adjustment)

1. error corrections are not accounting changes. 1a. errors fixing is prior period adjustment and should be reported as an adjustment to opening balance of retained earnings, not on current period income. 1b. Prior period errors are omissions from, and misstatements in, an entity's financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available and could reasonably be expected to have been obtained and taken into account in preparing those statements. Such errors result from mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud. 2. error corrections include: corrections of errors in recognition, measurement, presentation, or disclosure in financial statements resulting from math error (duplicate), mistake in application of US GAAP, or oversight or misuse of facts that existed at the time the financial statements were prepared; changes from non-GAAP method of accounting to a GAAP method of accounting (e.g. cash basis to accrual basis), which is a specific correction of an error. 3. An error correction is accounted for by restating all prior periods presented up to year of error that is corrected. -- The correct answer is $0 for current year adjustment from an error. At the beginning of Year 3 when the error is discovered, a prior period adjustment is needed. The prior period adjustment would not include an increase to depreciation expense. Ignoring income taxes, the debit would be to book the equipment at original cost of $150,000. The credits would be to accumulated depreciation of $60,000 (to reflect two years of depreciation at $30,000 per year) and retained earnings of $90,000. The credit to retained earnings is needed because the equipment was originally expensed, which would have reduced the retained earnings balance. This credit restores retained earnings to where it needs to be after two years of depreciation.

impairment gain/loss from selling a business segment

1. impairment gain/loss = Fair value minus Book value at year end. 2. book value = net assets = total assets minus total liabilities.

total revenues

1. include revenue from operations. i.e. sale revenue, service revenue, gain from sale of equipment. 2. Note: amounts from discontinued operations should be included in discontinued operations, not in revenues.

income tax benefit (expense)

1. income tax benefit = net loss from discontinued operations * tax rate. 2. income tax expense = net gain form discontinued operations * tax rate.

purpose of information presented in notes to financial statements

1. information presented in notes to the financial statements have the purpose of providing disclosures required by GAAP. SFAC 5 para. 7.

exception for change in depreciation method

1. it is no longer an error. 2. depreciation is no longer considered to be a change in accounting principle. A change in depreciation method is now considered both a change in method and a change in estimate. These changes should now be accounted for as a change in estimate and handled prospectively. 2a. No adjustment to retained earnings is necessary. 3. The new depreciation method should be used as of the beginning of the year of change and should start with the current book value of the underlying asset. 4. No retroactive or retrospective calculation should be made, and no adjustment should be made to retained earnings. 5. Cumulative effect should not be reflected on the income statement any more.

continuing operations (gain or loss)

1. no separate disclosure is necessary for gain or loss from common occurrences. 2. gain or loss from frequent events. 3. actual gain or loss (damage) must be reported. 4. Includes: net sales, COGS, SGA expense, Interest, events that are unusual and infrequent, but does not qualify as part of discontinued operations.

gain/loss from discontinued operation

1. reported below the income from continuing operations in the income statement, net of tax. -- The results of discontinued operations of a component are reported in discontinued operations (for the current period and for all prior periods presented) in the period the component is either disposed of or is held for sale. The results of subsequent operations of a component classified as held for sale are reported in discontinued operations in the period in which they occur. -- may include disposal/sale of a component/segment of an entity, a group of components, or a business or nonprofit activity, whole line. 2a. It DOES NOT INCLUDE: phase out of production line and changes related to tech improvements. 3. items reported includes: impairment loss, gain/loss from actual operations, gain/loss on disposal. (these are recognized in the period in which they incur.) 4. also to qualify, the same must represent a strategic shift and must have a significant effect on its operations and financial results.

How should change in reporting entity be reported in financial statements?

1. retrospectively, including note disclosures, and application to all prior period financial statements presented. (must be reported currently, but also retrospectively if comparative financial statements are presented.) 2. change in entity happens when acquisition or consolidation. Need to report as if it has always been that way. So need retrospective changes. 3. Under GAAP restatement from change in entity is referred to as a "retrospective adjustment."

amount of prior period adjustment for wrong depreciation taken.

1. should be net of tax. 2. A prior period adjustment needs to be made in the year the error is found. 3. prior period adjustment = (incorrect amount minus correct amount) * (1 - tax rate).

consignor and consignee: inventory and revenue

1. the consignor maintains the inventory on books. 2. consignee does not record the full revenue amount, but rather a commission based on agreement with the consignor. Remaining revenue goes to consignor.

LIFO vs weighted average

1. when making changes from WA to LIFO, no adjustment needs to be made. Not reported. 2. when making changes from LIFO to weighted average, cumulative effect of method change is reported on the financial statement. 3. The cumulative effect of a change in accounting principle is now reported as an adjustment to beginning retained earnings when it is considered practicable to calculate the cumulative effect. 4. Under US GAAP, when making a change to LIFO, it is generally considered impracticable to calculate the cumulative effect of the change (in most cases, data on the historical LIFO layers ins not available). In a change to LIFO, the beginning inventory dollar amount becomes the first LIFO layer. No cumulative effect adjustment is made. The change is accounted for prospectively. 5. In a change from LIFO to WA, there is no such impracticability. The cumulative effect is computed and the change is handled retrospectively. -- A change from LIFO to another inventory cost flow assumption requires a cumulative catch-up adjustment as of the beginning of the year of change. The beginning balance of retained earnings is adjusted, net of tax. 400,000 × (1 − .30) = 280,000. A change from LIFO to another method is reported by restating prior period financial statements in a manner similar to a prior period adjustment.

cumulative effect of accounting principle changes

1b. the cumulative effect of a change in accounting principal (net of tax) is shown as an adjustment to beginning retained earnings of the PRIOR YEAR (January 1 of prior year) or earliest year in statement of stockholder's equity. 2. If the comparative financial statements are not presented, the cumulative effect of change in accounting principle is determined as of the beginning of the year of change. (end of prior year before year of change.) For balance sheet items. 3. For income statement item: Need to look at all past years in the aggregate. This will allow us to arrive at the adjustment to obtain the amount of retained earnings that would have been reported at the beginning of the period of change if the new accounting principle had been used for all prior periods.

issue price of bond

= Present value of principal + present value of interest payments. -- PV of principal = principal amount * PVF with yield rate at # of periods. -- PV of interest payments = principal amount * stated interest rate * PVF of annuity at yield rate at # of periods. Note: if bond interest is paid semi annually, periods double and yield rate used is halved. note: stated interest rate is halved if interest is paid semi annually.

Ending Fair Value of plan assets

= beginning FV of plan assets + contributions - benefits paid + actual return on plan assets. -- if actual return % is given then: actual return on PA = beg year PA * return%

retained earnings equals

= beginning retained earnings + net income - dividends declared +- prior period adjustments +- accounting changes reported retrospectively -- net income = net of tax. dividends declared = cash dividends declared + property dividends distributed -- property dividends are deducted from RE at market value on the date of declaration. Net effect on RE = property dividend at value on declaration date minus gain on marketable security. gain on marketable security = value at declaration - original cost of property.

amortization of prior service cost from initiated pension plan

= beginning unrecognized prior service cost / average remaining service life -- prior service cost is booked to other comprehensive income and then amortized to the income statement (net periodic pension cost) by assigning an equal amount to each future period of service of each employee who is active at the date of the amendment.

rent revenue (cash to accrual)

= cash from rent + rent receivable - unearned rent

depreciable base

= cost - salvage value

interim period tax expense

= estimated ANNUAL effective tax rate applied to year to date income before taxes minus the tax expense recognized in previous interim periods. - when available, you should use tax rate during the period of when the temp difference reverses. -- measurement of deferred taxes is based on the applicable tax rate. This requires using the enacted tax rate expected to apply to taxable items (temporary differences) in the periods the taxable item is expected to be paid (liability) or realized (asset). best estimate at second quarter: The best, most current estimate of the annual effective tax rate should be used to determine the income tax provision for the second quarter. This rate is the effective tax rate expected to be applicable for the full year as estimated at the end of the second quarter.

gross profit percentage

= gross profit/net sales

earnings per share

= net income - preferred dividends / weighted avg common shares outstanding. -- Only discontinued operations have separate earnings per share calculations and disclosures. -- Extraordinary items are no longer recognized under U.S. GAAP. Unrealized gains and losses on available-for-sale securities are part of other comprehensive income. Other comprehensive income items are direct charges to stockholders' equity and do not affect net income. They have no earnings per share calculations and disclosures.

hospital revenue, gains and other support without donor restrictions

= patient service revenue with charity care - charity care revenue + other revenue + net assets released from restrictions used for operations

Cash received from customers (direct method)

= revenues - increase in receivables + decrease in receivables + increase in unearned revenue - decrease in unearned revenue.

net sales revenue

= sales revenue - sales returns and allowances - sales discounts.

net assets

= total assets - total liabilities + net income - dividends paid.

Book value per share of common stock

= total stockholders equity - preferred equity / number of shares of common stock outstanding common stock outstanding = issued shares - treasury stock preferred equity = preferred stock + dividends in arrears on preferred stock + premium paid to preferred stockholders if business liquidates. -- Book value per common share (or, simply book value per share - BVPS) is a method to calculate the per-share value of a company based on common shareholders' equity in the company. Should the company dissolve, the book value per common share indicates the dollar value remaining for common shareholders after all assets are liquidated and all debtors are paid.

treasury stock

A corporation's own stock that has been reacquired by the corporation and is being held for future use. -- Share of its own stock held by a corporation should be recorded as treasury stock and shown as a reduction in the stockholders' equity section of the BS. Shares of company's own stock should be reclassed out of investments. -- when treasury stock is sold, it will increase stockholders' equity. -- Corporations are not permitted to report income statement gains and losses from treasury stock transactions. Instead, treasury stock "gains and losses" are reported as direct adjustments to stockholders' equity. Gains are recorded by crediting APIC - Treasury Stock, while losses are recorded by first reducing any existing APIC - Treasury Stock to $0, and then debiting any additional loss to Retained Earnings.

appropriated retained earnings

A retained earnings account that is restricted for a specific use, usually to comply with contractual requirements, board of directors' policy, or current necessity. -- A retained earnings appropriation debits (reduces) "unappropriated retained earnings" and sets up (credits) "appropriated retained earnings." It does not affect the income statement. -- can be used to restrict retained earnings available for dividends. -- When the purpose of the appropriation has been achieved, it should be restored to unappropriated retained earnings. -- restricted cash is separate from appropriated retained earnings. (There may also be an appropriation for part of restricted cash, but this would have to be specifically mentioned in the question.) -- Rule: There is no requirement to appropriate retained earnings for any purpose. Retained earnings may be set aside for future purposes by classifying a portion s "appropriated".

royalty expense

A royalty is a payment made by one party, the licensee or franchisee to another that owns a particular asset, the licensor or franchisor for the right to ongoing use of that asset. 2. It does not include expenses to acquire intangible/tangible assets i.e. copyright, patent. Purchased copyright should be recorded as an intangible asset.

percentage of completion method F1 M4

A type of revenue recognition system where the firm books sales as they complete certain milestones of the service rendered. 1. Revenue recognized equals percentage of ESTIMATED total income either: (1) that incurred costs to date bear to total estiamted costs based on the most recent cost information (revenue = sales price*(costs incurred to date/total estimated cost)), or (2) that may be indicated by such other measure of progress toward completion appropriate to the work performed. 2. IF there is expected loss for a contract, it is recognized immediately in their entirety for both methods percentage of completion and completed contract method. (as conservatism). 3. Estiamted profit (loss) = contract price - total cost. (need to calculate for each year) 4. total cost = cost incurred in the year + estiamted costs to complete. (Need to calculate for each year.) 5. gross profit recognized for the year = (cost incurred to date / total cost) * estimated profit - gross profit previously recognized. 6. when calculating income for the year, income previously recognized is used, progress billing to date is not used. 7. When (costs incurred to date + gross profit earned to date) exceeds cumulative billings to date, it represents current asset for the year 8. When cumulative billings exceeds (costs incurred to date + gross profit earned to date), it represents a liability for the year. 9. When (costs incurred to date + gross profit earned to date) EQUALS cumulative billings to date, no asset or liability is recognized for the year.

financial statements for not for profit

All not-for-profit organizations are required to produce a Statement of Financial Position, a Statement of Activities and a Statement of Cash Flows. Not-for-profit organizations do not produce a Statement of Functional Expenses.

refund liability

An entity should recognize a refund liability if it receives or expects to receive consideration from a customer and anticipates having to refund a portion or all of that consideration. The refund liability represents the amount an entity does not expect to be entitled to receive. In this case, Clothes Co. cannot book revenue at the time of sale because it cannot reasonably estimate returns. Because Link is given 12 months to return any clothing for a refund, once the 12-month period has passed, Clothes can then recognize revenue because any future returns will result in exchanges rather than refunds.

comprehensive annual financial report (CAFR)

CAFR is divided into 3 sections: 1. introductory (includes transmittal letter, organization chart, and list of principal officers) 2. financial (includes both basic financial statements and required supplementary information as required by GASB 34 3. statistical

Cost of goods sold (COGS)

COGS = beginning inventory + purchases - ending inventory. -- if BI is understated then COGS is understated by that amount. -- if EI is overstated then COGS is understated by that amount. -- COGS = sales times COGS % -- COGS % = 1 - GP% -- freight in costs are part of COGS, but freight out are part of selling costs and not COGS. -- COGS is expensed when inventory is sold.

modified cash basis financial statements

Cash basis financial statements with modifications that have substantial support: - common modifications: recording long term liabilities, accrual of income taxes, and capitalization of inventory are all common modifications made to cash basis financial statements.

outstanding checks

Checks are considered outstanding when they have not cleared the bank, thereby reducing the bank balance. It is a reconciling item for bank balance.

Checks mailed

Checks are not considered a disbursement until mailed because they are still under the control of the company. The cash balance should not change until the check is mailed and not when it is written.

comprehensive income

Comprehensive income is the change in equity of a business during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity except those resulting from investments by owners and distributions to owners. SFAC 6 para 70. Comprehensive income includes all items included in "net income" plus "other comprehensive income" items. -- note: unusual and infrequent gain is already included in net income. becareful not to double count.

contingent share

Contingent shares are those shares that can be issued if some specific conditions or milestones related to the issue of contingent shares are met by the issuer of the shares; one such condition can be earnings of the corporation which is required to exceed the targeted thresholds for the issuance of contingent shares. -- stock option is not a contingent share because the holder is required to pay the strike price to exercise the option.

how to report deferred service contract revenue when cost of service contract is incurred evenly during the year and contract is sold/entered evenly throughout the year. (warranty/revenue recognition) - similar to unearned revenue accrual.

Deferred service contract revenue at year end = total deferred revenue minus earned revenue during the year. -- Total deferred revenue = (number of contracts sold times sale price per contract) minus revenue earned during the year. --Revenue earned during the year = (number of contracts * sales price per contract * percent of cost incurred evenly * .5) - When cost of contract is incurred evenly (meaning about the same number each month), it means you can use average annual spending incurred in the year to calculate revenue earned during the year instead of having the need to calculate amount of time per contract cost was outstanding during the year. To take an average, you divide by 2. (the midpoint of the year being June 30/July 1). If warranty/service contract comes with a good, and if contract was signed earlier in the year, more warranty would be performed by year end, thus reducing the deferred revenue balance than years when contracts were signed later during the year.

Valuation Techniques

Entities can use the market approach, the income approach, the cost approach, or a combination of these, as appropriate, when measuring the FV of an asset or a liability. The valuation technique should be appropriate to the circumstances and should maximize the use of observable inputs and minimize use of unobservable inputs. A change in valuation technique or its application is accounted for as a change in accounting estimate (which is accounted for prospectively). And NOT under change in valuation technique, according to SFAS No. 157. -- The income approach converts future amounts, including cash flows or earnings to a single discounted amount to measure fair value. -- The cost approach uses current replacement cost to measure fair value. -- The market approach uses prices and other relevant information from identical or comparable market transactions to measure fair value. Observable inputs is not a fair value measurement approach. Observable inputs are inputs other than quoted market values that are directly or indirectly observable for the asset or liability.

Diluted Earnings Per Share

Diluted EPS = Income available to the CS shareholders + Interest on dilutive securities / Weighted average number of CS (assuming all dilutive securities are converted to CS) -- Dilutive securities are securities that are not common stock but can be converted to common stock if the holder exercises that option. If converted, dilutive securities effectively increase the weighted number of shares outstanding, which decreases EPS. -- The If converted method should be used to determine the dilutive effects of the convertible securities. The If converted method assumes that the securities were converted to CS at the beginning of the period (or at the time of issue, if later). -- if converted method for Convertible bonds: 1. add to numerator for Diluted EPS, the interest expense net of tax. EX: for 8% convertible bonds of $1,000,000; income tax rate is 30%. You would add to net income as interest received from bond holders of 80,000 (1,000,000 * 8%) and subtract 30% tax deduction eliminated equal to 24,000 (80,000 * 30%). 2. add to denominator the number of CS associated with the assumed conversion. -- dividends to convertible preferred stockholders: preferred dividends are not subtracted for dillutive EPS when computing the adjusted net income because we are making an assumption that the preferred shares were converted to CS at the beginning of the period, and this that no preferred dividends were paid. -- For Dilutive EPS, changes in EPS from possible conversion of bond and stock is used only if they are dilutive (decreases EPS)

disclosure requirement related to risk and uncertainties under US GAAP

Disclosure requirements: 1. entity's major products or services and its principle markets. 2. the use of estimates in the preparation of the financial statements. 3. concentrations when it is reasonably possible that a concentration could cause a severe impact in the near term.

dividend paid

Dividends are often declared by the company prior to actual cash payment to the stockholders. When dividends are declared, the retained earnings account is debited and dividends payable account is credited. The journal entry looks like the following: Retained earnings [Dr.] Dividends payable [Cr.] When cash for previously declared dividends is paid to stockholders, dividends payable account is debited and cash account is credited. The journal entry for the payment of cash dividends looks like the following: Dividends payable [Dr.] Cash [Cr.] As a result of above journal entry, the cash balance is reduced by the amount of dividend paid to stockholders and the dividend payable liability is extinguished.

allowance method of recording losses from uncollectible accounts

Dr. bad debt expense Cr. Allowance for doubtful accounts. -- The allowance method anticipates and estimates that some of the accounts receivable will not be collected.

how to record prepaid service expense but has not yet received service, when service is paid with service.

Dr. prepaid service expense (asset). Cr. Revenue. Then when prepaid service is given: Dr. service expense. Cr. prepaid service expense.

internal use costs depreciation: project costs to be capitalized

For software developed internally, costs incurred in the preliminary project stage are expensed under U.S. GAAP. The costs AFTER the preliminary project stage are capitalized and depreciated over the economic life of the product. Any costs incurred during the preliminary project state, as well as costs for training and maintenance, should be expensed. Costs incurred after the preliminary project state, once commitment to the project has been made, can be capitalized. These costs include costs for materials and services, direct labor costs, and interest costs incurred for the project. In this case, the only expense eligible for capitalization is the $200,000 to write the code. The $50,000 payroll costs were incurred in the preliminary phase, and the $70,000 general and administrative costs cannot be capitalized because they relate to training and maintenance.

permanent funds

Funds used to account for and report resources that are restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government's programs—that is, for the benefit of the government or its citizenry. Permanent funds do not include private-purpose trust funds, which should be used to report situations in which the government is required to use the principal or earnings for the benefit of individuals, private organizations, or other governments.

net patient service revenue (F8-56)

Hospital Inc. would report net patient revenue in an amount equal to its gross patient service revenue net of both charity care and the difference between established billing rates and fees negotiated with third-party payors (sometimes called contractual adjustments). Net patient revenue for Hospital Inc. patient service revenue = gross patient service revenue - charity care - contractual adjustments contractual adjustments: difference between established billing rates and fees negotiated with third party payors.

IFRS vs GAAP

IFRS requirements: 1. statement of compliance with IFRS be included in the financial statements. 2. disclosure of judgements made (e.g. whether a financial asset is categorized as "held to maturity" or "available for sale"). 3. disclosure is required when management is aware of material uncertainties that may give rise to substantial doubt about the entity's ability to continue as a going concern. 3.1. An entity is considered to be a going concern if it is reasonably expected to remain in existence and to be able to settle all its obligations for the foreseeable future. Management is required to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern within one year after the date that the financial statements are issued. 4. IFRS does not specify the basis of accounting to be used by an entity for which there exists substantial doubt about its ability to continue as a going concern. GAAP requirements: 1. disclosure regarding substantial doubt about an entity's ability to continue as going concern is required, EVEN IF that doubt is alleviated by management's plans to address it. BOTH IFRS and GAAP requirements: 1. disclosure of all significant accounting policies. 2. disclosure of estimates made in preparation of financial statements. 3. going concern is a fundamental assumption. 4. require relevant disclosures when there is doubt about an entity's status as a going concern. 5. require the evaluation of going concern status be performed by management.

component depreciation

IFRS requires component depreciation. Under component depreciation, the equipment, component, and inspection cost are recognized and depreciated separately: An asset is purchased at 100,000 and the cost includes 15,000 that must be replaced every 5 years. inspection fee of $5,000 and must be reinspected every 10 years. Equipment: ($100,000 − $15,000 − $5,000) / 20 years = $80,000 / 20 years = $4,000 Component: $15,000 / 5 years = $3,000 Inspection cost: $5,000 / 10 years = $500 Total annual straight-line depreciation = $4,000 + $3,000 + $500 = $7,500

Level 3 Inputs for Fair Value

Least reliable, unobservable inputs- used/acceptable ONLY when no observable inputs (level 1 or 2) or when undue cost and effort is required to obtain observable inputs. Reflects a company's own assumptions about the way the related asset or liability would be priced. Examples: 1. measurement based on management assumptions only. 2. historical performance and return on investment. 3. discounted cash flows of entity (projections).

cost method of accounting for treasury stock

Method of accounting for treasury stock in which treasury stock purchases are recorded in the Treasury Stock account at their cost to the company without regard to the original issue price or par value. Under the cost method, the purchase of treasury stock is recorded by debiting treasury stock account by the actual cost of purchase. The cost method ignores the par value of the shares and the amount received from investors when the shares were originally issued. When treasury shares are later reissued, the treasury stock account is credited for the cost at which they were purchased, cash account is debited for the amount actually received and if the amount received on reissuance of treasury stock is: -- more than the cost of treasury stock, the difference between the amount received and the cost of the treasury stock is credited to additional paid-in capital. -- less than the cost of treasury stock, the excess of cost of treasury stock over the amount received is debited to discount on capital account.

fair value method

Method of recording equity investments when an investor has insignificant influence, often indicated by ownership of less than 20% of the voting shares. Under this method, we classify equity investments as either trading securities or available-for-sale securities and report investments at their fair value. Sub's income is not recognized by parent. -- under FV method, receipt of a dividend is recorded as income i.e. dividend income and does not affect the investment account. -- Dividend Income = No. of shares × dividend per share -- depending on when the dividend is paid, it will be treated differently. If dividend is paid after gaining significant influence i.e. 20%-50% ownership, then parent needs to treat dividend received as decrease in investment in sub account. i.e. Dr. Cash, Cr. Investment in Sub.

cash to accrual basis of accounting

One approach for converting from cash-basis to accrual-basis is as follows: 1. Add increases in current assets. For example, when AR increases, the increase is not considered to be income under the cash basis because the cash has not been collected, but the increase is income under the accrual basis. 2. Subtract decreases in current assets. Conversely, when AR decreases, then cash-basis counted it as revenue when the cash was collected, but under the accrual basis, the income was recognized in a prior period and should not be recognized again in the current period. 3. Add decreases in current liabilities. For example, when AP decreases, this represents a cash outflow that is recorded as an expense under the cash basis. However, under the accrual basis the paid expenses were recorded in a prior period and should not be recorded again in the current period. 4. Subtract increases in current liabilities. Conversely, when AP increases, this represents expenses incurred under the accrual basis method that have not been recorded under the cash basis method because they have not been paid.

other comprehensive income (OCI)

Other comprehensive income is those revenues, expenses, gains, and losses under both Generally Accepted Accounting Principles and International Financial Reporting Standards that are excluded from net income on the income statement. This means that they are instead listed after net income on the income statement. Revenues, expenses, gains and losses appear in other comprehensive income when they have not yet been realized. Something has been realized when the underlying transaction has been completed, such as when an investment is sold. Thus, if your company has invested in bonds, and the value of those bonds changes, you recognize the difference as a gain or loss in other comprehensive income. Once you sell the bonds, you have then realized the gain or loss associated with the bonds, and can then shift the gain or loss out of other comprehensive income and into a line item higher in the income statement, so that it is a part of net income. non-owner changes in equity that bypass the income statement. 1. included items: revenue, expenses, gains, losses, that are included in comprehensive income but excluded from net income under US GAAP or IFRS. examples: 1. foreign currency translation adjustment gain: gain is removed from OCI when related investment is terminated upon liquidation. 2. unrealized holding gain/loss on available for sale debt security 3. changes in funded status of pension plan due to: gains/losses, prior service costs, and net transition assets or obligations. 4. effective portion of cash flow hedges. 5. revaluation surplus: revalue fixed tangible assets at year end. (FV minus carrying value) 6. actuarial gain: Under IFRS, the actuarial gain should remain in OCI without being reclassified to the income statement. -- Under IFRS, revaluation gains and losses are calculated as the difference between the fair value and carrying value (cost − accumulated depreciation) of the revalued assets on the revaluation date. This gain is reported as a revaluation surplus in other comprehensive income. Closing OCI account at fiscal year end: 1. OCI should be closed to the accumulated other comprehensive income account, which is a component of stockholders' equity.

loss is probable and can be reasonably estiamted

Provision for a loss contingency should be accrued by a charge to income, providing that both the following conditions exist: 1. a loss and a liability should be recognized when it is probable that as of date of financial statement, an asset has been impaired or a liability incurred, based on information available prior to issuance of the financial statement. 2. The amount of loss can be reasonably estimated. In the event that a range of probable losses is given, GAAP requires that best estimate of the loss be accrued. If no amount in range is better estimate than any other amount within the range, the minimum amount in the range should be accrued, and a note disclosing the possibility of an additional (Max - Min) loss should be presented. -- if a new better estimate is found, it is used prospectively, from the current year forward. Previous years are unaffected.

Journal entries for percentage of completion method

Record Costs Incurred: Dr. Construction in Progress Cr. Cash Record billings on contract: Dr. Contracts Receivable Cr. Progress Billings Record Payment Received: Dr. Cash Cr. Contract Receivable Record Revenue/costs during construction period: Dr. Construction expense Dr. CIP (usually a plug) Cr. Revenue (revenue = sales price*(costs incurred to date/total estimated cost) minus previously recognized revenue.) Note: Losses are recognized in full in the period incurred. Gross profit in the year of loss = estiamted loss minus previously recognized revenue. Journal entries are the same for "Completed Contract Method" except revenue and profit is journalized in year of completion of contract.

restricted funds (hospital accounting)

Restricted funds are restricted as to use by the donor, grantor, or other source of the resources. They are, by definition, donor-restricted funds.

special purpose government

Rule: A special purpose government is a government that stands by itself: (SELF) 1. Separately 2. Elected 3. Legally separate 4. Financially independent -- Component units that do not meet the criteria above for blended reporting (governing boards of component and primary government are substantially the same or the component unit exclusively serves the primary government) are reported discretely as a component unit.

Post employment benefits reporting requirement

Rule: All four of the following must be met in order to meet the reporting requirements for post-employment benefits: 1. The employer's obligation relating to the employees' rights to receive compensation for future absences is attributable to services already rendered. 2. The obligation relates to rights that vest or accumulate. 3. Payment of the compensation is probable. 4. The amount can be reasonably estimated.

net periodic pension cost

The amount recognized in an employer's financial statements as the cost of a pension plan for a period. Components of net periodic pension cost are: (SIRAGE) Service cost, Interest cost, Return on plan assets (PA), Amortization of prior service cost (PSC) or credit, Gain/loss amortization Existing Net Obligation Amort. Net Periodic Pension cost = service cost + interest cost - return on PA + amort of PSC - gain amort. + existing net obligation amort. Interest Cost = Beg. PBO * Discount Rate Expected return on plan assets = Beg. FV of (PA) * return on PA %. amortization of prior service cost = prior service cost / avg. remaining service life. gain amortization = Gain amortization = (Excess of unrecognized gain over the greater of 10% of beg. PBO or 10% of beg. FV plan assets) / Average remaining service life. -- (assume above, 10% is the return on plan assets %) Actual return on plan assets = ending plan assets - beg plan assets - contributions + benefits paid End. Plan assets = beg. PA + contributions + actual return - benefits paid.

accounts receivable turnover

The calculation of the accounts receivable turnover ratio is: credit sales for a year divided by the company's average amount of accounts receivable throughout that year. Note that only the company's credit sales (or sales on credit) are used in the calculation, since cash sales do not involve accounts receivable. To illustrate the calculation of the accounts receivable turnover, let's assume that a company's credit sales for the most recent year were $6,000,000 and its average amount of accounts receivable during that year were $600,000. As a result, the accounts receivable turnover ratio is: credit sales of $6,000,000 divided by the average amount of accounts receivable of $600,000 = 10 times a year. This indicates that on average the company's accounts receivables turned over 10 times during the year, or approximately every 36 days (360 or 365 days per year divided by the turnover of 10).

unearned revenue

The liability created by receiving payment in advance. examples: unearned rent, deposits received by customers. -- Proceeds received from the advance sale of nonrefundable tickets for a theatrical performance should be reported in the seller's financial statements before the performance as unearned revenue for the entire proceeds, and not to extent of related costs expended. Example transaction: Payment received in advance for future service: Dr. Cash Cr. unearned service revenue When it is earned: Dr. unearned revenue Cr. revenue. ending unearned rev. = beg. unearned rev. + end. cash receipt - revenue. -- revenue = ending cash receipt + beg. unearned rev. - end. unearned rev. To account for this unearned rent, the landlord records a debit to the cash account and an offsetting credit to the unearned rent account (which is a liability account). In the month of cash receipt, the transaction does not appear on the landlord's income statement at all, but rather in the balance sheet (as a cash asset and an unearned income liability). In the following month, the landlord earns the rent, and now records a debit to the liability account to clear out the liability, and a credit to the revenue account to recognize the revenue. The impact of the transaction now appears in the income statement, as revenue.

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal (or most advantageous) market at the measurement date under current market conditions. FV measurement should include all the assumptions that a market participant would name, including assumptions about risk and any information about restrictions. Notes: 1. FV is measured for a specific asset or liability, a group of assets and/or liabilities, or an entity's own equity instrument. 2. FV is a market-based measure, not an entity-based measure. 3. FV is an exit price (the price to sell an asset or transfer a liability), not an entrance price (the price to acquire an asset or assume a liability). 4. FV includes transportation costs, but no transaction costs. 5. the price in principal market for an asset or liability will be the FV measurement. 6. a company may apply FV to financial instruments on an instrument by instrument basis, but once elected, it will be used until the asset/liability is disposed.

actuarially determined contributions

The schedule of actuarially determined contributions displayed in the required supplementary information should be presented to the extent available for a minimum of the lessor of 10 years or years in existence of city.

The subsequent event evaluation period for a "filer"

The subsequent event evaluation period for a "filer" (an entity that files its financial statements with the SEC) is through the date that its financial statements are issued. The date that financial statements are issued is the date that its financial statements have been widely distributed to financial statement users in a form and format that comply with GAAP. The subsequent event evaluation period for all other entities is through the date that the financial statements are available to be issued. The date that financial statements are available to be issued is the date that its financial statements are in a form and format that comply with GAAP and all approvals for issuance have been obtained.

bond discount under IFRS

Under IFRS and U.S. GAAP, bond issuance costs are deducted from the carrying value of the liability and included in the debit entry to bond discount upon issuance. As part of the discount from par, bond issuance costs are amortized over the life of the bond using the effective interest method. The initial accounting entry upon issuance is: Dr. Cash = bonds payable - discount Dr. Discount = discount + bond issuance cost Cr. Bonds payable = face value

deferred tax assets and liabilities under IFRS and GAAP

Under IFRS, all deferred tax assets (DTA) and deferred tax liabilities (DTL) are netted and the net amount is reported as non-current on the balance sheet. Under U.S. GAAP, deferred tax liabilities and assets should be classified and reported as a non-current amount on the balance sheet. This treatment aligns with IFRS. All deferred tax liabilities and assets must be offset (netted) and presented as one amount (a net non-current asset or a net non-current liability), unless the deferred tax liabilities and assets are attributable to different tax-paying components of the entity or to different tax jurisdictions.

profit distribution on statement of cash flows

Under IFRS, companies have the choice of presenting profit distribution (dividend payments) as either an operating cash outflow or a financing cash outflow. Under U.S. GAAP, profit distribution can only be presented as a financing cash outflow.

write off accounts receivable

Under the allowance method, if a specific customer's accounts receivable is identified as uncollectible, it is written off by removing the amount from Accounts Receivable. The entry to write off a bad account affects only balance sheet accounts: a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable. No expense or loss is reported on the income statement because this write-off is "covered" under the earlier adjusting entries for estimated bad debts expense. Dr. allowance for doubtful accounts Cr. Accounts Receivable

Change in accounting principle (accounting change)

Use of an accounting principle in the current year different from the one used in the preceding year. 1. Ordinarily, need to go back in time to fix it. retrospective changes and up to current year. 1a. Exception for inventory change to LIFO: gets current and prospective treatment. 2. examples of changes in principle: changes in inventory methods, change in FASB standards, 3. A change in accounting principle is not acceptable if it is done in order to increase earnings and the stock price of the company. There will be no accounting change when this happens.

maintains a safety stock equal to 50% of the current year purchases means

What this means is that only half of the current year purchases is sold each year; the other half of the purchases carries over to the next year and is sold first (and shipped) in that year.

deferred tax asset

Writing down a deferred tax asset (i.e. not likely to use available deferred tax asset in the future) increases (debits) income tax expense and increases (credits) the Deferred Tax Valuation Allowance in the amount that is expected to go unrealized.

reportable segment (10% size test) - F2-22

a reportable segment is one having 10% or more of all revenue, including revenue from unaffiliated sales and from intersegment sales. Note: 1. unaffiliated customer sales and intracompany sales must be disclosed separately. - Reported profit or loss: The absolute amount of segment's reported profit or loss is 10% or more of the greater, in absolute amount of: 1. combined reported profit of all operating segments that did not report a loss. 2. combined reported loss of all operating segments that did report a loss. - Assets: segment's identifiable assets are 10% or more of the combined assets of all operating segments. The assets of a segment are those assets included in the measure of the segment's assets that are reviewed by the CODM. Does not apply to liabilities.

Note Receivable

a written promise of a customer to pay the business a sum of money at a future date. 1. When note receivable is given and service is not yet given. the credit portion consist of unearned revenue and possible discount on note receivable.

An employer's obligation for postretirement health benefits that are expected to be provided to or for an employee must be fully accrued by the date the: a. Employee is fully eligible for benefits. b. Employee retires. c. Benefits are utilized. d. Benefits are paid.

a. Employee is fully eligible for benefits. The accrual will begin when the employee is hired through the eligibility (vesting) date.

authoritative literature

all of these words = these words in any order this exact phrase = words used in that order any of these words = one or more of these words, in no particular order none of these words = none of these words entered here. Tips: 1. find titles that have same words or related words to the words in the question. i.e. current asset = "balance sheet" for title 2. using different key words than solution manual to get right answer is okay.

nonrecognized subsequent events

an entity should not recognize subsequent events that provide information about conditions that DID NOT EXIST at the balance sheet date. (NO Changes in financial statement should be made). Following events and estimated financial impact known that occur after balance sheet date but before the date the financial statements are issued or are available to be issued are considered to be nonrecognized subsequent events: 1. contingent liabilities and significant commitments. 2. sale of bond or capital stock. 3. business combination 4. settlement of litigation, if litigation arose after BS date. 5. change in invested stock prices. 6. cost to rebuild building is not incurred until building is rebuilt. 7. etc. MORE: nonrecognized subsequent events should be disclosed if disclosure is necessary to keep financial statements from being misleading. Disclosure should include the nature of the subsequent event and an estimate of the financial effects or a statement that no estimate can be made. Only footnote disclosure is required for a "reasonably possible" loss. Possible loss = reasonable estimate of loss minus covered loss + deductible.

cash flows from financing activities

cash inflows and outflows related to external sources of financing (owners and creditors) for the enterprise. (borrow and payback) by issuing stocks and bonds.) -- includes obtaining resources from owners and providing them with a return on, and a return of, their investment; i.e. borrowing money and repaying amounts borrowed. Dividends paid, not dividends declared, should be used as an outflow of cash from financing activities. (dividends received is reported as operating cash inflow) -- examples: notes payable -- cash payments made to reduce debt principal are reported as a financing activity. But cash paid for interest payments would be reported as a component of cash from operating activity. -- examples of financing activities: -- issuing stock (cash inflow) -- providing owners with a return on their investment: ex: paying cash dividends or repurchasing stock (cash outflow) -- borrowing money: ex: issuing/selling bonds, notes, and other borrowings. (cash inflow) -- payments of principal on amounts borrowed. (cash outflow) NOTE: excludes interest payment which is reported in operating cash flow.

cash paid for other expenses (direct method)

cash paid for other expenses = other operating expenses - decrease in prepaid expenses + increase in prepaid expenses + decrease in accrued liabilities - increase in accrued liabilities.

cash paid to employees (direct method)

cash paid to employees = salaries and wages expense - increase in wages payable + decrease in wages payable.

cash paid to suppliers (direct method)

cash paid to suppliers = COGS + increase in inventory - decrease in inventory - increase in accounts payable + decrease in accounts payable

Cash and Cash Equivalents

cash: actual unrestricted cash and cash equivalents, short term, liquid investments that are so near maturity (original maturity date was within three months of the purchase date) that the risk of changes in the value because of interest rate changes is insignificant. -- use checkbook balance and not the bank statement balance. reported cash for certain date = checkbook balance + check drawn on that date but mailed after that date. -- do not include following: post dated checks (checks dated after balance sheet date), restricted cash, e.g. sinking fund, original maturity over 3 months, negative bank balances. -- negative bank balances should be reported as current liability.

contribution revenue

contribution revenue = total pledge receivable * % collectible of pledge. or contribution revenue = donation received - FMV given to donor. -- items included in contribution revenue: 1. pledge without donor restrictions to be paid within the following year. 2. cash gift donor restricted for scholarships. (amounts used for specific purpose) Items not included in contribution reveune: 1. resources provided to NFP in exchange for research results do not constitute a contribution. 2. conditional revenue: revenue recognized when a future event occurs. conditional receipts are displayed as refundable advances (a liability). (Sort of like a unearned revenue.) Note: donor restricted donation does not necessarily mean it is conditional revenue. 3. beneficiary of money from a will.

designation of an enterprise fund's net position for future equipment replacement

designation of an enterprise fund's net position for future equipment replacement would be displayed as unrestricted net position. -- net position will include classifications for investment in capital assets net of related debts, amounts restricted by external sources and unrestricted components. -- Internal designations are classified as unrestricted.

calculate year end balance for unearned subscription revenue

equals beg. balance, plus net sales minus expired/used subscription expirations.

accrual to cash basis revenue

equals cash collections + unearned revenue. (Cash collections = accrual basis revenue - ending receivable)

operating profit by segments

operating profit by segments is based on measurement of profit reported to the "chief of operating decision maker." Interest expense and general corporate expenses are not allocated to the divisions solely for the purposes of segment disclosures; they may be allocated if that is how the segments report to the Chief Operating Decision Maker (CODM). Sales to other segments is included in operating profit by segment. RULE: Equity in net income of another company, general corporate expenses, interest, income tax expense, and gains or losses on discontinued operations are all not included in segment profit unless they are included in the determination of segment profit reported to the reported to the CODM. - Generally, Operating Profit = revenues - directly traceable costs - reasonably allocated costs. Rule: Operating profit by segments is based on the measure of profit reported to the "Chief Operating Decision Maker." Interest expense, income taxes, and general corporate expenses are not allocated to the divisions solely for the purposes of segment disclosures; they may be allocated if that is how the segments report to the "Chief Operating Decision Maker."

advance payments

prepaid salary expense. Advances affect cash flow but does not affect accrual basis expense. advance payments does not affect commission expense.

private purpose trust funds

private-purpose trust funds, which should be used to report situations in which the government is required to use the principal or earnings for the benefit of individuals, private organizations, or other governments. -- -- example item: 1. non expendable trust 2. water and sewer deposits that are abandoned or escheat properties that are held on behalf of the state pending disposition by operation of law.

program services (NFP)

program services (expenses) are activities for which the organization is chartered. It relates to the mission or service delivery objectives of the organization. Examples: 1. universities: education and research 2. hospitals: patient care and education 3. union: labor negotiations and training 4. day care: child care 5. golf country club: golfing and eating, supplies

cash payments for purchases

purchases = COGS + end. inventory - beg. inventory. cash payments for purchases = cogs + increase in inventory + decrease in accounts payable - decrease in inventory - increase in accounts payable.

governmental activities change in net position

remember: CAN CPAS RIDE or SIT -- governmental to government wide reconciliation is needed. using the CPAS RIDES mnemonic. Change in net position of governmental activities = Net change in fund balance (GRaSPP) - total govt funds + Capital outlay expenditures + Principal payments on noncurrent debt - assets disposals (NBV) - sources (other financing sources - debt proceeds) + revenue (measurable but unavailable) - interest expense (accrued) - depreciation expense + internal service fund net revenue. revenue can include: sales tax. The accrual of additional revenues relates to sales tax revenues earned at December 31 but not accrued under modified accrual accounting. October earnings would have been recognized under the modified accrual basis of accounting (remitted on December 15, received within 60 days of year end on January 15) and November earnings would have been recognized under the modified accrual basis of accounting (remitted on January 15, received within 60 days of year end on February 15). December earnings would not have been recognized under the modified accrual basis of accounting since they would not have been available within 60 days of year-end (remitted on February 15 and received on March 15): GRaSPP—Net Changes in Fund Balance $ 350,000 Capital outlay 275,000 Principal payments 45,000 Asset disposals 0 Sources (debt proceeds) (125,000) Revenue 100,000 Interest expense (accrued) 0 Depreciation Expense (75,000) Internal Service fund net revenue 0 Government-wide change in net position $ 570,000

output method (to recognize revenue)

revenue is recognized based on the value to the customer of the goods or services transfered to date relative to the remaining foods or services promised. Examples: units produced or delivered, time elapsed, milestones achieved, surveys of performance completed to date, and appraisals of results achieved. This method should only be used when the output selected represents the entity;'s performance toward complete satisfaction of the performance obligation. Otherwise, input method may be necessary.

Input levels for Fair Value (hierarchy of inputs)

the FV hierarchy prioritizes the inputs that can be used in the valuation techniques for FV. Level 1 inputs have the highest priority, and level 3 inputs have the lowest priority. Lowest level significant to FV measurement should be used. Level 1 is most reliable and Level 3 is least reliable. Maximize observable inputs (level 1 and 2) and minimize unobservable inputs (level 3). Level used for measurement is determined by the level of the lowest level significant input.

Accumulated Other Comprehensive Income

the aggregate amount of the other comprehensive income items. 1. it is a component of stockholders' equity on the balance sheet. (statement of financial position) 2. it is classed under equity account under balance sheet. 3. It is used to accumulate unrealized gains and unrealized losses on those line items in the income statement that are classified within the other comprehensive income category. The unrealized gains and losses that may be aggregated into the accumulated other comprehensive income account include: Unrealized holding gains or losses on investments that are classified as available for sale Foreign currency translation gains or losses Pension plan gains or losses Pension prior service costs or credits

construction in progress should be reported in

the government wide state if net position. -- It would not be in the capital project fund, since each year's capital project activities are closed out at year end. (Prior to year end, the construction in progress of the current year would be reported in the capital projects fund).

The Economic resources measurement focus and full accrual basis of accounting is used for both ...

the governmental-wide financial statements as well as the fund presentations of the proprietary and fiduciary funds (SE-CIPPOE) governmental wide: 1. Service (internal) 2. Enterprise 3. Custodial 4. Investment Trust 5. Private purpose trust 6. Pension (and other employee benefit) trust SCARE: (SE is proprietary and CIPPoe are fiduciary funds) SE CIPPOE (Full) Accrual Accounting Record non-current assets and liabilities Economic resources measurement focus (Full) Accrual Accounting - recognizes revenues in the accounting period in which they are earned. Proprietary funds: internal service, enterprise. Only proprietary funds should issue statement of cash flows. Fiduciary Funds: Custodial, Investment, Private, Purpose, Pension and Other Employee Benefit. Fiduciary activities should be excluded from government wide measures of operational accountability since fiduciary resources cannot be used to support the government's programs or other services. Enterprise Fund should account for fixed assets in a manner similar to a for profit organization. Its accounting is similar to accrual basis commercial accounting.