Intermediate Accounting Ch. 3&4

Front 1

operating cycle

Back 1

refers to the period of time necessary to convert cash to RM to a finished product to receivables to cash again

Front 2

paid in capital

Back 2

amounts invested by shareholders in the corporation

Front 3

retained earnings

Back 3

amounts earned by the corporation

Front 4

in what ways are disclosure notes critical to understanding the financial statements? what should be included?

Back 4

any explanation that contributes to investors' and creditors' understanding of the results of operations, financial position, or cash flows of the company should be included

Front 5

what are the three types of disclosure notes?

Back 5

(1) summary of significant accounting policies- conveys info about the company's choices from among various alternative acct. methods, e.g. LIFO--> FIFO; (2) subsequent event- a significant event that takes place after the fiscal year end but before the issuance of the statements; (3) economic substance of related-party transactions- requires disclosure including a description of the transaction and the dollar amounts involved

Front 6

management discussion and analysis

Back 6

(usually note 1), provides a biased but informed perspective of a company's (a) operations, (b) liquidity, and (c) capital resources

Front 7

auditors report

Back 7

an independent and professional opinion about the fairness of the representations in the financials and about the effectiveness of the company's internal control over financial reporting

Front 8

what are the 4 opinions an auditor can issue?

Back 8

(1) unqualified- present fairly and inf conformity with US GAAP, i.e. A+; (2) qualified- an immaterial exception to the rules; (3) adverse- material exceptions; (4) disclaimer- insufficient info has been gathered to express an opinion

Front 9

accrued interest payable (identify the appropriate classification category)

Back 9

current liabilities

Front 10

franchise (identify the appropriate classification category)

Back 10

intangible assets

Front 11

accumulated depreciation (identify the appropriate classification category)

Back 11

contra plant, property, and equipment

Front 12

prepaid insurance, for 2013 (identify the appropriate classification category)

Back 12

other assets

Front 13

bonds payable, due in 10 years (identify the appropriate classification category)

Back 13

long-term liability

Front 14

current maturities of long-term debt (identify the appropriate classification category)

Back 14

current liabilities

Front 15

note payable, due in 3 months (identify the appropriate classification category)

Back 15

current liabilities

Front 16

long-term receivables (identify the appropriate classification category)

Back 16

investments and funds

Front 17

bond sinking fund, will be used to retire bonds in 10 years (identify the appropriate classification category)

Back 17

investments and funds

Front 18

supplies (identify the appropriate classification category)

Back 18

current assets

Front 19

machinery (identify the appropriate classification category)

Back 19

property, plant and equipment

Front 20

land, in use (identify the appropriate classification category)

Back 20

property, plant and equipment

Front 21

unearned revenue (identify the appropriate classification category)

Back 21

current liabilities

Front 22

copyrights (identify the appropriate classification category)

Back 22

intangible assets

Front 23

preferred stock (identify the appropriate classification category)

Back 23

paid-in-capital

Front 24

land, held for speculation (identify the appropriate classification category)

Back 24

investments and funds

Front 25

cash equivalents (identify the appropriate classification category)

Back 25

current assets

Front 26

wages payable (identify the appropriate classification category)

Back 26

current liabilities

Front 27

name the 5 parts of the asset section of a classified balance sheet

Back 27

(1) current assets, (2) investments and funds, (3) property, plant and equipment, (4) intangible assets, (5) other assets

Front 28

name the 2 parts of the liabilities section of the classified balance sheet

Back 28

(1) current liabilities, (2) long-term liabilities

Front 29

name the 2 parts of the owners' equity section of the classified balance sheet

Back 29

(1) paid-in-capital, (2) retained earnings

Front 30

what is included in a related party disclosure?

Back 30

the nature of the relationship, a description of the transaction, and a report of the dollar amounts (and any amount to from or to related parties)

Front 31

what events are classified as a subsequent event? (materiality is assumed)

Back 31

issuance of debt or equity securities, a business combination or the sale of a business, the sale of assets, an event that sheds light on the outcome of a loss contingency, or any other event having a material effect on operations

Front 32

what qualifies to be disclosed in a summary of significant accounting principles?

Back 32

accelerate or straight-line depreciation, LIFE or FIFO, average cost to measure inventories; defines which securities are cash equivalents, policies regarding the timing of recognizing revenue

Front 33

related party transaction (indicate how the item should be disclosed)

Back 33

in a separate disclosure note

Front 34

depreciation method (indicate how the item should be disclosed)

Back 34

in the summary of significant accounting policies note

Front 35

allowance for uncollectible accounts (indicate how the item should be disclosed)

Back 35

on the face of the balance sheet

Front 36

composition of investments (indicate how the item should be disclosed)

Back 36

in a separate disclosure note

Front 37

composition of long-term debt (indicate how the item should be disclosed)

Back 37

in a separate disclosure note

Front 38

inventory costing method (indicate how the item should be disclosed)

Back 38

in the summary of significant accounting policies note

Front 39

number of shares of common stock authorized (indicate how the item should be disclosed)

Back 39

on the face of the balance sheet

Front 40

employee benefit plans (indicate how the item should be disclosed)

Back 40

in a separate disclosure note

Front 41

current ratio (formula and what does it tell us?)

Back 41

=current assets/ current liabilities; shows liquidity, allows for inter-firm comparisons

Front 42

acid-test ratio, aka quick ratio (formula and what does it tell us?)

Back 42

=quick assets (cash +A/R +marketable securities) / current liabilities; exactly what qualifies as quick assets is disclosed in notes, usually a ratio of about 1, stronger indication of liquidity

Front 43

debt to equity (formula and what does it tell us?)

Back 43

= total liabilities/ shareholder's equity; shows long-term solvency, indicates the extent of reliance on creditors, rather than owners, in providing resources

Front 44

times interest earned (TIE) ratio (formula and what does it tell us?)

Back 44

= (net income +interest expense+ taxes) / interest expense; shows LT solvency, indicates the margin of safety provided to creditors

Front 45

what are the 4 major lines of a consolidated income statement?

Back 45

gross margin, operating income, income before taxes, and net income

Front 46

international standards for inocme statements (as opposed to US GAAP) require:

Back 46

certain minimum details (info) to be reported, expenses can be classified by either function (cogs, sg&a) or natural (salaries, rent) description, no extraordinary items

Front 47

earnings quality refers to what?

Back 47

ability (reliability) of reported earnings (income) to predict a company's future earnings

Front 48

to enhance predictive value, analysts try to separate:

Back 48

transitory earnings effects from its permanent earnings

Front 49

two major methods used by managers to manipulate income are:

Back 49

(1) income shifting and (2) income statement reclassification

Front 50

what items included in operating income should not be considered indicative of a company's permanent earnings?

Back 50

restructuring costs, asset impairment losses, inventory write-down charges, in-process R&D

Front 51

what are examples of separately reported items?

Back 51

discontinued operations, extraordinary items

Front 52

the income effects of a discontinued operation includes:

Back 52

(1) the operating income or loss of component from the beginning of the reporting period to the disposal date (2) the gain or loss on disposal

Front 53

when the component is considered held for sale, the income effects of a discontinued operation includes:

Back 53

(1) operating income or loss of a component from the beginning to the end of the reporting period, (2) an "impairment loss" if the carrying value (book value) of the assets of the component is more than fair value minus cost to sell

Front 54

extraordinary items are defined as:

Back 54

unusual in nature and infrequent in occurrence

Front 55

the assets and liabilities of a component considered held for sale are reported:

Back 55

separately in the balance sheet at lower of book value or fair value minus cost to sell

Front 56

extraordinary gains and losses are presented:

Back 56

net of tax

Front 57

name the 3 categories of accounting changes

Back 57

(1) a change in an accounting principle (e.g. LIFE--> FIFO); (2) a change in estimate (e.g. useful life of an asset); (3) a change of reporting entity (e.g. merger)

Front 58

most voluntary changes in accounting principles are accounted for:

Back 58

retrospectively

Front 59

a change in depreciation, amortization, or depletion method is considered:___; how is it accounted for?

Back 59

a change in accounting estimate that is achieved by a change in accounting principle; accounted for prospectively

Front 60

what items included in operating income should not be considered indicative of a company's permanent earnings?

Back 60

restructuring costs, asset impairment losses, inventory write-down charges, in-process R&D

Front 61

what are examples of separately reported items?

Back 61

discontinued operations, extraordinary items

Front 62

the income effects of a discontinued operation includes:

Back 62

(1) the operating income or loss of component from the beginning of the reporting period to the disposal date (2) the gain or loss on disposal

Front 63

when the component is considered held for sale, the income effects of a discontinued operation includes:

Back 63

(1) operating income or loss of a component from the beginning to the end of the reporting period, (2) an "impairment loss" if the carrying value (book value) of the assets of the component is more than fair value minus cost to sell

Front 64

extraordinary items are defined as:

Back 64

unusual in nature and infrequent in occurrence

Front 65

the assets and liabilities of a component considered held for sale are reported:

Back 65

separately in the balance sheet at lower of book value or fair value minus cost to sell

Front 66

extraordinary gains and losses are presented:

Back 66

net of tax

Front 67

name the 3 categories of accounting changes

Back 67

(1) a change in an accounting principle (e.g. LIFE--> FIFO); (2) a change in estimate (e.g. useful life of an asset); (3) a change of reporting entity (e.g. merger)

Front 68

most voluntary changes in accounting principles are accounted for:

Back 68

retrospectively

Front 69

a change in depreciation, amortization, or depletion method is considered:___; how is it accounted for?

Back 69

a change in accounting estimate that is achieved by a change in accounting principle; accounted for prospectively

Front 70

what is the formula for determining straight line allocations?

Back 70

= (cost- salvage value)/ useful life

Front 71

how are errors discovered in the same year corrected?

Back 71

by journal entry

Front 72

how are errors discovered in subsequent years corrected?

Back 72

not material- simply corrected in the year discovered; material- considered a prior period adjustment which requires an addition to or reduction in the beg. retained earnings and a restatement of previous years' financials

Front 73

define Earnings per share (EPS):

Back 73

the amount of income achieved during a period for each share of common stock outstanding

Front 74

what is the basic EPS formula?

Back 74

=net income/ weighted avg. number of common shares outstanding

Front 75

who must disclose EPS?

Back 75

all corporations with publicly traded common stock

Front 76

what is comprehensive income?

Back 76

the total change in equity for a reporting period other than from transactions with owners

Front 77

comprehensive income includes (all reported net of tax):

Back 77

(1) net unrealized holding gains (losses) from investments; (2) gains (losses) fro and amendments to post-retirement benefits plans; (3) deferred gains (losses) from derivatives; (4) gains (losses) from foreign currency translation