Exam 1

Front 1

List the 6 sections of the IFRS equity section

Back 1

1. Share Capital
2. Share Premium
3. Accumulated other comprehensive income
4. Treasury Stock
5. Retained earnings
6. Minority Interest

Front 2

What are the usefulness of the balance sheet?

Back 2

1. Liquidity
2. Solvency
3. Financial Flexibility

Front 3

What are the limitations of the balance sheet?

Back 3

1. Historical Cost
2. Judgments and Estimates
3. Other information not disclosed (Human capital)

Front 4

Working Capital

Back 4

(Net Current Assets)-(Net Current Liabilities)
This represents the amount of a company's relatively liquid resources

Front 5

Operating Activities

Back 5

Involve cash effects of transactions that affect net income

Front 6

Financing Activities

Back 6

Cash transactions involving changes in equity

Front 7

Investing Activities

Back 7

Involve cash effects of transactions that affect property, plant and equipment

Front 8

Current Cash to Debt Coverage Ratio

Back 8

Measure of liquidity

(Net cash provided by operating activities)/(total average current liabilities)

Front 9

Cash to debt coverage ratio

Back 9

Measure of solvency

(Net cash provided by operating activities)/(average total liabilities)

Front 10

Free cash flow

Back 10

(net cash provided by operating activities)-(capital expenditures)-(dividends)

Front 11

What 2 things needs to be disclosed in terms of fair value?

Back 11

1) Fair value measurement
2) Fair value level

Front 12

Fair Value Levels

Back 12

Level 1 - Observable inputs (ie. market prices in the WSJ)
Level 2 - A mix of observable and in observable inputs) - market prices of similar products
Level 3 - Company makes judgments or estimates

Front 13

What are the five categories of assets?

Back 13

1. Current Assets
2. Long-term investments
3. Property, plant and equipment
4. Intangible
5. Other

Front 14

What are the categories of liabilities and equity?

Back 14

1. Current liabilities
2. Long-term debt
3. Capital Stock (Owners' Equity)
4. Additional paid-in capital (owners' equity)
5. Retained earnings (owners' equity)

Front 15

Additional Paid-in Capital

Back 15

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

Front 16

Capital Stock

Back 16

The par or stated value of the shares issued

Front 17

What are the three types of short-term investments?

Back 17

1. Held to maturity
2. Available for Sale
3. Trading

Front 18

Held to maturity investments

Back 18

Debt securities that a company has the positive intent and ability to hold to maturity, valued at amortized cost

Example: bonds

Front 19

Trading

Back 19

Debt and equity securities bough and held primarily for sale in the near term to generate income on short-term price differences

Front 20

Available for sale

Back 20

Debt and equity securities not classified as held to maturity or trading securities

Front 21

What are the four types of long-term investments?

Back 21

1. Securities (bonds, common stock or long-term notes)
2. Tangible fixed assets not used in operations such as land held for speculation
3. Special funds, such as sinking fund and cash surrender value of life insurance
4. Investments to non consolidated subsidiaries or affiliated companies

Front 22

What are the three categories of current liabilities?

Back 22

1. Payables (Account payable, wages payable and tax payable, etc.)
2. Collections received in advance for delivery of goods or performance of services, such as unearned revenue or unearned subscriptions revenue
3. Other liabilities whose liquidation will take place within the operating cycle, such as the portion of long-term bonds to be paid in the current period or short-term obligations from equipment purchase

Front 23

What are the three categories of long-term liabilities?

Back 23

1, Obligations from issuance of bonds, long-term lease obligations, long-term notes payable
2. Ordinary operations of the company (pension and deferred income)
3. Service or product warranties (depends on the occurrence or non-occurence of future events)

Front 24

Retained Earnings

Back 24

Retaining earnings from previous year+net income-dividends

Front 25

Cash surrendered value of life insurance

Back 25

Asset (long-term liability)

Front 26

Where does "discount on bonds payable" go on the balance sheet?

Back 26

Long-term liabilities:
Bonds Payable XXX
Less: Discount on Bonds Payable XXX

Front 27

Solvency

Back 27

Ability of a company to pay its' debt sa they mature

Front 28

Financial Flexibility

Back 28

Measures the ability of a company to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs

Front 29

Liquidity

Back 29

Describes the amount of time that is expected to elapse until an asset is realized or otherwise converted into cash or until a liability has been paid

Front 30

Income Statement

Back 30

Measures the success of company operations for a given period of time

Front 31

Name the 3 usefulness of the Income Statement

Back 31

1. Past performance
2. Provide basis for future performance
3. Help assess risk or uncertainty of achieving future cash flows

Front 32

Limitations of the Income Statement

Back 32

1. Companies omit items that cannot measure reliably
2. Different accounting methods (depreciation)
3. Judgement

Front 33

Earnings management

Back 33

When company plans the timing of revenues, expenses, gains, losses to increase income in the current year at the expense of income in future years

Front 34

Irregular Items

Back 34

1. Discontinued
2. Extraordinary
3. Unusual losses/gains
4. Accounting principle
5. Estimates
6. Correction of Errors

Front 35

When does a company use "net income from continued operations"?

Back 35

When there are discontinued operations

Front 36

Discontinued operations

Back 36

1) Loss on disposal value of component
2) Loss on operations from discontinued component

Front 37

Extraordinary Items

Back 37

Unusual and infrequent

Front 38

Unusual Gains and Losses

Back 38

Unusual and infrequent, but NOT both

Front 39

Changes in accounting principle

Back 39

Recognizes accounting principle by making a retrospective adjustment and making comparative years

Front 40

Changes in estimates

Back 40

Only accounts for that change in that particular period

Front 41

Correction of errors

Back 41

Prior period adjustments and show prior years

Front 42

What is the journal entry for correction of errors?

Back 42

Retained earnings XXX
Accounts Receivable XXX

Front 43

Components of a Retained Earnings Statement

Back 43

Retained Earnings, beginning
Correction of net income (prior period)
Retained earnings, adjusted
Add: Net Income
Less: Cash Dividends
Less: Stock Dividends
Retained earnings, ending

Front 44

Other Comprehensive Income

Back 44

Non-owner changes in equity that bypass the income statement

Front 45

How should companies report "other comprehensive income"?

Back 45

1) Second Income Statement
2) Combined Statement of Comprehensive Income
3) Stockholders' Equity

Front 46

What is the journal entry for the change in estimate for depreciation?

Back 46

Depreciation Expense XXX
Accumulated depreciation XXX

Front 47

Are extraordinary items permitted under IFRS?

Back 47

No

Front 48

How do GAAP and IFRS differ in terms of the single-step and multi-step income statement?

Back 48

GAAP follow either single-step or multi-step

IFRS does not mention single-step or multi-step

Front 49

How do GAAP and IFRS differ in terms the certain items that should be presented on the income statement?

Back 49

GAAP has no minimum requirements and IFRS does

Front 50

How do IFRS and GAAP differ on classification on expenses?

Back 50

IFRS - Identify by nature or function

GAAP - requires a functional presentation

Front 51

Does GAAP require companies to indicate the amount of net income attributable to non-controlling interest?

Back 51

NO

Front 52

Who has a more narrow definition of discontinued operations - GAAP or IFRS?

Back 52

IFRS

Front 53

Does IFRS allow other comprehensive income to be reported on the statement of stockholders' equity?

Back 53

NO

Front 54

Does IFRS allow revaluation of PPE?

Back 54

Yes and it is under other comprehensive income

Front 55

Components of Stockholders' Equity

Back 55

1. Common Stock
2. Retained earnings
3. Accumulated Other Comprehensive Income

Front 56

Nature-of-Expense Method - Give an example

Back 56

Cost of Materials used
Direct labor incurred

Front 57

Function Method

Back 57

COGS
Selling expenses
Administrative expenses

Front 58

Non-controlling interest

Back 58

Allocation of new income of loss divided between two classes: (1) majority interest owned by stockholders who have controlling interest) and (2) the non-controlling interest

Front 59

How does IFRS report non-controlling interest?

Back 59

Report as separate item below new income or loss as an allocation of new income or loss

Front 60

What is the revaluation model for IFRS?

Back 60

The revaluation of property, plant and equipment are included in the equity section

Front 61

Entity perspective

Back 61

Entities are different from owners

Front 62

Decision usefulness

Back 62

Allows investors to see if the company is able to generate net cash inflows and management's ability to protect and enhance investments

Front 63

What are the three organizations involved with the development of financial accounting?

Back 63

1. Securities and Exchange Commission (SEC)
2. American Institute of CPA (AICPA)
3. Financial Accounting Standards board (FASB)

Front 64

IOSCO

Back 64

International Organization of Securities Comissions

Front 65

PCAOB

Back 65

Public Company Accounting Oversight Board

Front 66

What organization was found as the result of the Sarbanes-Oxley Act?

Back 66

PCAOB, an oversight board

Front 67

IFRS

Back 67

International Financial Reporting Standards

Front 68

IASB

Back 68

International Accounting Standards Board

Front 69

What are the three types of pronouncements for FASB?

Back 69

1. Standards, Interpretations and Staff Positions
2. Financial Accounting Concepts
3. Emerging Issues Task Force Statements

Front 70

APB

Back 70

Accounting Principles Board

Front 71

CAP

Back 71

Committee on Accounting Procedure

Front 72

Name the committees that AICPA establish (in order)

Back 72

1. CAP
2. APB
3. Wheat Committee

Front 73

What was the major purpose of APB?

Back 73

1. Advance written expression of accounting principles
2. Determine appropriate practices
3. Narrow difference between inconsistency and practice

Front 74

Who writes the accounting research bulletins?

Back 74

Committee on Accounting Procedure

Front 75

FAF and name purpose

Back 75

Financial Accounting Foundation

-Select members of FASB and GASB

Front 76

What is the purpose of FASB?

Back 76

To establish and improve standards of financial accounting and reporting for the guidance education of the public

Front 77

FASAC and purpose

Back 77

Financial Accounting Standards Advisory Committee

To consult on major policy issues

Front 78

What is considered GAAP?

Back 78

1. FASB Standards Statements
2. Interpretations
3. Staff Positions

Front 79

Statements of Financial Accounting Concepts

Back 79

NOT GAAP

Fundamental objectives and concepts that the Board uses for future development

Front 80

Interpretations

Back 80

Modify or extend existing standards

Front 81

Staff Positions

Back 81

Interpretive guidance and also minor amendments

Front 82

FASB Technical Bulletins

Back 82

Timely guidance on selected issues

Front 83

EITF

Back 83

Emerging Issues Task Force

-Representatives from CPAs talk about how to account for unusual accounting situations

Front 84

Auditing Standards Board

Back 84

Established by AICPA to develop auditing standards

Front 85

AcSEC

Back 85

Accounting Standards Executive Committee

Speak for AICPA

Front 86

What is the difference between IFRS and GAAP in terms of drivers?

Back 86

GAAP is rule based

IFRS is principle based

Front 87

Does the SEC allow foreign companies to trade shares to file IFRS financial statements without reconcile to GAAP?

Back 87

YES

Front 88

Does IOSCO set accounting standards?

Back 88

NO, just make sure that things are efficient

Front 89

IASCF

Back 89

International Accounting Standards Committee Foundation

Front 90

What are the types of pronouncements issued by IASB?

Back 90

1. International Financing Reporting Standards
2. Framework for financial reporting
3. International financing reporting interpretations

Front 91

SAC and purpose

Back 91

Standards Advisory Council

Consults with IASB on major issues

Front 92

Hierarchy of IFRS

Back 92

1. IFRS
2. IAS
3. Interpretations orignated of IFRIC and SIC

Front 93

SIC

Back 93

Standards Interpretations Committee

Front 94

IFRIC

Back 94

International Financial Reporting Interpretations Committee

Front 95

remember tax when doing correction of errors for statement of retained earnings

Back 95

:)

Front 96

Second Income Statement Format

Back 96

Net Income
Other comprehensive Income
Comprehensive Income

Front 97

Changes in estimates vs. correction in errors, which one is on the RE and which one is in unusual gains/losses

Back 97

changes in estimates- unusual gains/losses

Corrections - RE

Front 98

Cookie Jar Reserve

Back 98

When management decreases current earnings for increased future earnings