External Financial Reporting

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Comprehensive Income

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is the sum of net income and other items that must bypass the income statement because they have not been realized, including items like an unrealized holding gain or loss from available for sale securities and foreign currency translation gains or losses.

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Examples of other comprehensive income

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Unrealized gains/losses on available-for-sale investments

Unrealized gains/losses on hedge/derivative financial instruments

Foreign currency translation adjustments

Unrealized gains/losses on postretirement benefit plans

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ASC Topic 220 Requirement

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The Statement requires that a company (1) classify items of other comprehensive income by their nature in a financial statement, and (2) display the accumulated balance of other comprehensive income (i.e. the items that bypass the income statement) separately from retained earnings and additional paid-in capital in the equity section of the balance sheet.

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Capital Lease Requirements

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Must pass 1 of following

Title Test: Title passes to the lessee at the end of the lease term.

Bargain Purchase Test: The lease contains a bargain purchase option.

Economic Life Test: The lease term is 75% or more of the economic life of the asset.

Fair Market Value Test: The present value of the minimum lease payments is 90% or more of the fair market value of the asset at the inception of the lease.

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Incremental Borrowing Rate

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The rate that, at the inception of the lease, the lessee would have incurred to borrow the funds necessary to buy the leased asset on a secured loan with repayment terms similar to the payment schedule called for in the lease

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Implicit Interest Rate

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It is the discount rate that, when applied to the minimum lease payments and any unguaranteed residual value accruing to the lessor, causes the aggregate present value to equal the fair value of the leased property to the lessor

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Lessors Perspective: Capital Lease

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The lessor will remove the leased asset from its books, recording a receivable due from the lessee. Any discount or unearned interest is also recorded and amortized over the lease term. To determine the classification:

Collectibility of the receivable is reasonably assured. .No important uncertainties surround the amount of unreimbursable costs yet to be incurred by the lessor under the lease.

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Long-term Investments

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Fair Value: If the investor acquires less than 20% of the outstanding stock of a company, the appropriate fair-value method should be used depending on the intent of the investor in holding the stock.

Equity: An investor that acquires 20% or more of the outstanding stock of a company is presumed to be able to significantly influence that company’s operating and financial policies.

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Flexible budget variances

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A flexible budget variance is any difference between the results generated by a flexible budget model and actual results. the flexible budget amounts used are based on the price and quantity ofthe input allowed for the actual production.. AKA . Manufacturing input variances

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Manufacturing input variances treatment at period end

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manufacturing input variances are closed out at the end of each period to cost ofsales or,if material, they are prorated among cost of sales, finished goods inventory, work in processinventory and, for direct material variances only, direct materials inventory.

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Level 2 variance report

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Sales variances are Level 2 variances. In its variable manufacturing costs section, a Level 2 salesvariance report presents the total flexible budget variance for variable manufacturing costs for units sold.

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Level 3 variance report

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A production variance report,is required to present the detail behind the totalflexible budget variance. However, a production variance report includes all units produced, whether theywere sold or remained in inventory as unsold units at the end of the period.