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68 Cards in this Set

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OCBOA

Other Comprehensive Basis of Accounting or special purpose frameworks for nonpublic companies.

What are the special purpose frameworks?

- Cash Basis - Tax Basis - Contractual Basis - Regulatory Basis
Objectives of financial reporting are:
- Provide info useful to investors, lenders, and other creditors - Info about an entity's economic resources - Changes in economic resources and claims - Financial performance reflected by accrual accounting - Financial performance reflected by past cash flow
In order to be USEFUL, information must have BOTH....
Relevance and Faithful Representation
2 Ingredients of Relevance are
Predictive Value Confirmatory Value
3 Ingredients of Faithful Representations are
Free from Error Neutrality Completeness
Enhancing Qualitative Characteristics that related to BOTH Relevance and Faithful Representation are
Comparability Understandability Timeliness Verifiability
What is the ONE pervasive constraint that overrides the usefulness of information
Cost / Benefit
Equity consists of 3 elements. They are:
Contributions / investments by owners Distributions to owners (dividends) Comprehensive Income
Comprehensive Income is made up of
D-E-N-T D - Derivative Cash flow hedgesE - Excess adjustment of Pension PBO and FV of plan assets at year endN - Net unrealized gains or losses on "available-for-sale" securitiesT - Translation adjustments for foreign currency
Comprehensive income consists of 4 elements:
(1) Revenues(2) Expenses(3) Gains(4) Losses
When measuring an item at fair value, the entity will apply one of 3 valuation techniques:
(1) Market Approach (2) Income Approach (3) Cost Approach
What are the 3 levels of fair value measurement inputs?
Level I - The most reliable, involves the use of observable data from actual market transactions, occurring in an active market, for identical assets or liabilitiesLevel II - also involves the use of observable data from actual market transactions but either the transactions did NOT occur in an active market OR the transactions relate to similar but not identical assets or liabilitiesLevel III - involves the use of unobservable data and are largely based on management's judgement.
What are the expected factors to consider when estimating future cash flows?
(1) Risk(2) Timing(3) Interest(4) Amount of Cash Flows - Traditional approach - Expected approach
Based on Revenue Recognition, a revenue is RECOGNIZED when...
- A binding arrangements exists (contract) - Services rendered or delivery occured - Fixed or determinable price exists - Collection is reasonably assured
Other characteristics that enhance the usefulness of financial information include:
CUT-V C - ComparabilityU - UnderstandabilityT - TimelinessV - Verifiability
How is the P&L Structured:
On the tide in OCO - Operating IncomeN - Non-operating Income/expenseT - Provision for Income TaxI - Income from Continuing OperationsD - Gain/Loss from Discontinued E - Extraordinary LossN - Net IncomeO - Other Comprehensive IncomeC - Comprehensive Income
How is operating income structured on the P&L?
Sales(COGS) Gross Profit(Selling Exp)(G&A)(Dep Exp) Operating Income
What are the tiers of equity securities?
0-20% - Cost method or Marketable Securities - The implication is that no influence over the investee company exists - If this security isn't marketable, use the cost method 20-50% - Equity Method (One-line consolidation) - The implication is that the investor has significant voting influence over the investee 50%+ - Consolidation - The implication is that the investor has control over the investee - Members of the investor company constitute a majority of the board of directors of the investee
Trading Securities
investments in equity instruments, such as stocks, options, rights warrants or debt instruments, such as bonds, which the investor has acquired in an attempt to make profits by buying and selling within a short period of time. CURRENT ASSETS
Available-For-Sale

securities that are all investments in marketable equity or debt instruments that do not fit the definitions of HTM or trading securities. CURRENT OR NONCURRENT ASSETS

Held-To-Maturity
securities that are investments in bonds and other debt instruments which the investor has the ability and intent to hold until the date for repayment. NON CURRENT ASSETS
Trading securities are initially recorded at ____ but carried at _____
initially recorded at cost but carried at FMV
Trading securities' realized gains and losses are always on the _____ (financial statement)
Income Statement
The acquisition and disposal of trading securities is normally a(n) _______ activity on the Statement of Cash Flows
Operating
Available-for-sale securities are initially recorded at ____ but carried at _____
initially recorded at cost but carried at FMV
Available-for-sale securities' unrealized gains and losses are always on the _____ (financial statement)
Balance Sheet as a part of Comprehensive income int he stockholder's equity section
According to FASB, the process of reporting an item in the financial statements of an entity is
Recognition
Under IFRS an equity investment is considered an investment in an associate if the investor has significant influence over the investee indicated by
Having the power to participate in the decisions of the investee
A hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment is classified as a
Fair Value Hedge
Gains and losses of the effective portion of a hedging instrument will be recognized in current earnings in each reporting period for what type of hedge?
Fair Value Hedge
Is materiality a requirement for determining if a company that has invested in a financial instrument has invested in a derivative?
NO But, - There must be at least one underlying - There must be a notional amount - The contract may be settled on a net basis
Which of the following is NOT a derivative?(1) A contract requiring the company to buy Euros at some time in the future at a fixed price(2) An option to buy shares of another company's stock for a fixed price for a set period of time.(3) An agreement to pay interest at a fixed rate on a specific amount in exchange for the right to receive interest on the same specific amount at a variable rate.(4) An option to buy another company's land for a fixed price for a set period of time.
(4) An option to buy land is NOT a financial instrument and therefore, cannot be a derivative.
Under IRFS, a cash flow hedge and a hedge of a net investment in foreign operations are accounted for by...
Recognizing gains and losses in other comprehensive income (OCI)
A foreign subsidiary's functional currency is its local currency which has not experienced significant inflation. The weighted average exchange rate for the current year would be the appropriate exchange rate for translating which (Sales or Wages)?
Both
A balance arising from the translation or re -measurement of a subsidiary's foreign currency financial statements is reported int he consolidated income statement when the subsidiary's function currency is...
US Dollar
When dealing with foreign operations in IFRS, the proper terms are defined as...
Foreign Functional Presentation
During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which inventory cost flow method?
FIFO
The original cost of an inventory item is below both replacement cost and net realizable value. The net realizable value less normal profit margin is below the original cost. Under the lower of cost or market, the inventory item should be valued at...
Original Cost

Under IFRS, in periods of rising prices, what method may be used to minimize the amount reported in inventory and maximize the amount charged to COGS?

Weighted Average
Term Bond
a bond that will pay the entire principal upon maturity at the end of the term
Serial Bond
a bond in which the principal matures in installments
Debenture bonds
unsecured bonds that are not supported by any collateral
Stated, face, coupon, nominal rate
the rate printed on the bond. Represents the amount of cash the investor will receive every payment
Carrying Amount
this is the net amount at which the bond is being reported on the balance sheet and equals the face value of the bond (+) the PREMIUM (when the bond was issued above face value) or (-) the DISCOUNT (when the bond was issued below face value). It is also called the BOOK VALUE or REPORTED AMOUNT> It will initially be the same as the issue price, but gradually approaches the face value as time passes, since the premium or discount is amortized over the life of the bond.
Effective rate, Yield, Market Interest rate
this is the actual rate of interest the company is paying on the bond based on the issue price. The effective rate is often called the market rate of interest or YIELD.
When the bond is issued at a PREMIUM, the effective rate of interest will be ______ than the stated rate, since the _____.
Lower - cash interest and principal repayment are based on face value, but the company actually received MORE money than that.
When the bond is issued at a DISCOUNT, the effective rate of interest will be ______ than the stated rate, since the _____.
Higher - company must pay cash interest and principal based on a higher amount than the funds actually received upon issuance.
Convertible Bond
a bond that is convertible into common stock of the debtor at the bondholders option
Callable Bond
a bond which the issuer has the right to redeem prior to its maturity date
Convenants
restrictions that borrowers must often agree to
Present Value of Amount (lump sum)
this is used to examine a single cash flow that will occur at a future date and determine its equivalent value today. The amount you need to invest today, for how many years, at what interest rate, to get $1 back in the future.
Present Value of Ordinary Annuity
this refers to repeated cash flows on a systematic basis, with amounts being paid at the END of each period (it may also be known as an an annuity in arrears.) Bond interest payments are commonly made at the end of each period and use these factors.
Present Value of Annuity Due (Now)
this refers to repeated cash flows on a systematic basis, with amounts being paid at the BEGINNING of each period (it may also be known as an annuity in advance or special annuity). Rent payments are commonly made at the beginning of each period and use these factors.
Future Values (compound interest)
these look at cash flows and project them to some future date, and include all three variations applicable to present values. This is the amount that would accumulate at a future point in time of $1 were invested now. The future value factor is equal to 1 divided by the PV factor. For example, an investment of $10,000 in 2 years at 10% would accumulate to the principal X the future value factor. In this case the $10,000 + 1/0.8265 = $12,100.
Bond Issue Costs
costs directly associated with the issuance of the bonds are a non-current asset (deferred charge) and are amortized straight line over the period of time the bonds are outstanding.

Bond sinking funds

A fund setup for the retirement of bonds. The balance is treated as a non-current asset until the bonds mature. Any interest or dividends earned are added to the sinking fund balance and reported as income.

When should a long-lived asset be tested for recoverability?

When events or changes in circumstances indicate that its carrying amount may not be recoverable.

Under IFRS, when an entity chooses the revaluation model as its accounting policy for measuring PP&E and an asset is revalued, does the entire class of PP&E to which the asset belongs to have to be revalued?

Yes

When should a long-lived asset be tested for recoverability?

When events or changes in circumstances indicate that its carrying amount may NOT be recoverable.

May Co and Sty Co exchanged nonmonetary assets. The exchange is not expected to significantly affect the future cash flows for either May or Sty. May paid cash to Sty in connection with the exchange. To the extent that the amount of cash exceeds a proportionate share of the carrying amount of the asset surrendered, a realized gain on the exchange should be recognized by...

Sty only.

Under ASC 350, at what level should goodwill be tested periodically for impairment?

At the operating segment level or one level below.

Under IFRS, what valuation methods are used for intangible assets?

The Cost model or the revaluation model

Under IFRS, an entity that acquires an intangible asset may use the revaluation model for subsequent measurement ONLY if...

An active market exists for the intangible asset

There are a variety of ways to calculate the allowance for bad debt expense. Which of the following methods emphasizes asset valuation, the balance sheet approach?


(1) Aging the receivables


(2) Direct write-off


(3) Gross sales


(4) Credit sales less returns and allowances

Aging the receivables

Which method of recording uncollectible accounts expense is consistent with accrual accounting?



(1) Allowance


or


(2) Direct Write Off

Allowance

Gibbs Co uses the allowance method for recognizing uncollectible accounts. Ignoring deferred taxes, the entry to record the write-off of a specific uncollectible account would affect net income, working capital and accounts receivable in what ways?

Writes down the AR and does not affect either net income or working capital.

Roger Co issued corporate bonds on 1/25 for $1,000,000. Roger reports their financial statements in accordance with IFRS. What valuation method should Roger use to report their bonds on their statement of financial position at year end.

Either amortized cost or fair value through profit or loss