Accounting Final

Front 1

Potential Disclosure costs

Back 1

Information production
Competitive advantage
Ligitation Exposure
Political exposure

Front 2

Potential Disclosure benefits

Back 2

Low cost access to capital
Avoid the lemons problem

Front 3

Know the major components of the conceptual framework

Back 3

1) Relevant
2) Reliable
3) Consistent
4) Comparable

Front 4

What is the Revenue recognition rule under U.S. GAAP

Back 4

Revenues are recognized when either:
1) Cash or claims to cash are recieved in exchange for goods or services
2) When goods or services are transferred or rendered

Front 5

Wwhat principle guides a firm's recognition of expenses?

Back 5

Matching Principle

Front 6

What are the 3 types of transitory earnings?

Back 6

1) Special or unusual items
2) Extraordinary Items
3) Discontinued Operations

Front 7

What are special or unusual items?

Back 7

Items that are unusual or infrequent in nature. NOT both

Front 8

What are extraordinary items?

Back 8

Must be unusual and infrequent in nature.

Front 9

What are discontinued operations?

Back 9

Items that will not generate future operating cash flows.

Front 10

Are special or unusual items net of tax?

Back 10

NOT net of tax - they are "above the line"

Front 11

Are extraordinary items net of tax?

Back 11

Yes. they are "below the line"

Front 12

Are discontinued items net of tax?

Back 12

Yes. they are "below the line"

Front 13

What are the 5 popular earnings management devices?

Back 13

1)"Big Bath" restructuring charges
2) Creative aquisition accounting
3) Cookie jar reserves
4) Intentional errors deemed to be "immaterial and intentional bias in estimates
5) Premature or agressive revenue Recognition

Front 14

What are "Big bath" restructuring charges

Back 14

A Popular earnings Management Device, Excessive restructuring write offs that overstate estimated charges for future expenditures

Front 15

What is Creative aquisition accounting?

Back 15

A popular earnings management device, abuses linked to purchased "in-process research and development" that SFAS no. 2 requires to be expensed at the date of aquisition.

Front 16

What are Cookie Jar reserves?

Back 16

A popular earnings management device, for bad debts, loan losses, warranties, and other accruals. Reserve too much in good times and cut back on estimated charges, a convinent smoothing device.

Front 17

Definition of an Asset?

Back 17

Probable future economic benefits, obtained from past transactions or events

Front 18

Definition of a Liability?

Back 18

Probable future sacrifices, arising from present obligations, a result of past transactions

Front 19

Definition of Equity?

Back 19

The residual interest in net assets

Front 20

What are the 3 categories on the Statement of Cash flows?

Back 20

Operating
Investing
Financing

Front 21

What falls under operating activities?

Back 21

Everything that isn't in the other 2 categories, including interest and all depreciation

Front 22

What falls under investing activities?

Back 22

Cash transactions for long term assets

Front 23

What falls under financing activities?

Back 23

Cash txns for dividents, equity, sale of CS, cash txns for principal pmts, NOT interest.

Front 24

What is meant by the term articulation?

Back 24

You can always derive any one financial statement from information available in the other 3 statements

Front 25

How do you calculate NRV?

Back 25

Gross Recievables
-Uncollectables
=NRV (what we can expect to collect)

Front 26

How do you calculate cost of goods sold using a periodic inventory system?

Back 26

Does not keep a running record of inventory kept on hand. Determined by:
Beginning Inventory
+Inventory Purchases (CGAFS)
-Ending inventory
=COGS

Front 27

How do you calculate an inventory ceiling for lower of cost or market?

Back 27

Sale price - cost to complete and dispose.

Front 28

Another term for Inventory ceiling

Back 28

NRV

Front 29

How do you calculate an inventory floor for lower of cost or market?

Back 29

NRV - normal profit

Front 30

What costs should be included in the initial purchase of a LLA?

Back 30

All costs necessary to acquire an asset and make it ready for use.

Front 31

What is the formula for calculating basket purchase allocation?

Back 31

(FMV of asset/ FMV of basket) x Cost of basket

Front 32

Whose books are operating leases on?

Back 32

The lessor

Front 33

If, at inception, the lease satisfies any one or more of the following 4 criteria, it must be treated as a capital lease on the books of the lessee:

Back 33

1) The lease transfers ownership of the asset to the lessee at the end of the lease term.
2) The lesee can buy the asset by exercising a Bargin Purchase item
3) Non-cancelable lease term is 75% or more of the estimated economic life of the leased asset
4) PV of minimum lease payment equals or exceeds 90% of the FMV of the leased asset

Front 34

Why do Lessees prefer an operating lease approach?

Back 34

Does not reflect cumulative economic liability for all future lease payments on the balance sheet.

Front 35

The individual minimum rental payments of how many years must be disclosed as separate line items?

Back 35

5 years

Front 36

From a lessor's perspective, a capital lease must meet what 2 criteria?

Back 36

1) Transfer property rights in the leased asset to the lessee
AND
2) Allow resonably accurate estimates regarding the amount and collectivility of the eventual net cash flows to the lessor

Front 37

What are the 2 types of capital leases for a lessor?

Back 37

1) Sales type lease
2) Direct financing lease

Front 38

What is a sales type lease?

Back 38

A capital lease. If the lessor is either the manufacturer of the leased asset or a dealer who sells a leased asset.
- Asset is removed from books
- 2 profit streams:
a. Manufacturers/dealers profit
b. financing profit over time

Front 39

What is a direct financing lease?

Back 39

Lessor is a financial institution
- Asset removed from books
- financing profit only

Front 40

In terms of appropriate income measurement, what view does GAAP adopt?

Back 40

The proprietary view of the firm. The firm and it's owners are the same thing. Buying and selling a company's own stock does nothing. Focuses on a firms net assets

Front 41

What are 3 reasons companies buy back their own stock?

Back 41

1) Shares are needed for employee stock options
2) The stock is undervalued
3) Distribute surplus cash to owners

Front 42

Why do investors prefer preferred stock?

Back 42

1) Get dividends first
2) If a company goes out of business, preferred stockholders must recieve cash or other assets a least equal to the par value of their shares before any assets are distributed to common shareholders

Front 43

What are some reasons why companies may issue common stock?

Back 43

1) Less risky than debt
2) Unlike interest expense, preferred dividends aren't tax deductible
3) Preferred stock is treated like equity on financial statements instead of debt

Front 44

What accounting standard governs the treatment of mandatorily redeemable preferred stock?

Back 44

SFAS No. 150 - requires these to be treated as a LIABILITY. not equity.

Front 45

What act adopted by many states governs the legality of dividend distributions and what is the rule?

Back 45

1984 Revised model business corporation act: As long as the FMV of assets > than the FMV of liabilities after dividend distribution.

Front 46

What is a potential problem of the Revised model business corporation act?

Back 46

Most assets are recorded at costs not FMV. Companies can end up with BV of assets < BV of liabilities

Front 47

What is the formula to calculate EPS?

Back 47

(Net Income - preferred dividends)/ Weighted avg # of common shares outstanding

Front 48

What are the financial reporting alternatives for intercorporate equity?

Back 48

1) Minority passive <20% ownership
2) Minority Active 20%-50% ownership
3) Majority ownership >50% ownership

Front 49

When does the need for a goodwill calculation arise?

Back 49

When the purchase price paid for another business exceeds the FMV of the acquired net assets of that business

Front 50

What are the circumstances that might prompt an impairment test?

Back 50

1) Significant adverse change in the business climate
2) Adverse regulatory action or assessment
3) Unanticipated competition
4) Loss of key personnel
5) The reporting unit is likely to be sold

Front 51

When is the temporal method used?

Back 51

if a company has a U.S. seed. Not self sufficient

Front 52

When is the current rate method used?

Back 52

Used if the foreign sub has self contained foregin operations

Front 53

What is the equation to calculate The Deferred Gross Profit Percentage

Back 53

gross profit amount/ sales

Front 54

What is the deferred Gross profit percentage used for?

Back 54

Installment Sales

Front 55

What does the cost recovery method state?

Back 55

That you can only recognize profit once you have covered your COGS

Front 56

Why might managers prefer to assign a larger portion of money to land rather than a building?

Back 56

Because land doesn't depreciate. Buildings do.

Front 57

If a bond is issued at 10% and is yielding 8%, it is sold at a ____.

Back 57

premium

Front 58

If a bond is issued at 10% and it is yielding 12%, it is sold at a _____.

Back 58

discount