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ACCT 3110

Auburn Final Exam

QuestionAnswer
Where does the natural demand for accounting information arise? From the information needs of equity shareholders, creditors, and various other stakeholders to make resource allocation decisions
What is the process of communication financial accounting information to existing and potential future investors, creditors, lenders, and other external decision makers? Financial Reporting
What is it called when parties do not have the same information? Information Asymmetry problem
The need to bridge the information gap created by the separation of ownership and control also create what? the demand for financial accounting information
What are the principles, concepts, guidelines, methods, and practices that regulated companies are required to use in reporting accounting information in financial statements? GAAP or IFRS
What creates the demand for accounting standards and independent audits? the standards require managers to make decisions and then auditors must evaluate a companies standing
What is the ultimate objective of accounting information? Decision Usefulness
If accounting information is capable of making a difference in decisions made by finance statement users then it has? Relevance
If accounting information helps users form expectation about the future then it has? Predictive Value (Fundamental Characteristic of Relevance)
What are the fundamental Characteristics of Financial information? Relevance and Faithful Representation
What are the enhancing characteristics of accounting information? Comparability (Consistency), Verifiability, Timeliness, Understandability
What are characteristics of Relevance? Predictive Value, Confirmatory Value, Materiality
What are the characteristics of Faithful Representation? Completeness, Neutrality, Free From Error
If financial information provides feedback to confirm or correct prior predictions and expectations then it has? Confirmatory Value
What refers to the nature and magnitude of an omission or misstatement of accounting information that would influence the judgement of a reasonable person relying on that information? Materiality
What did FASB suggest in order to assist with Materiality? The nature of the item and the relative size of the item.
If accounting information represents the underlying economic transactions, events, and arrangements when the words and numbers accurately depict the economic substance of what the purport to represent then it is? Faithfully Represented
What are the key characteristics of Faithful Representation? Complete, Neutral, Free from Error
What provides users with full disclosure of all the information necessary to understand the information being reported, with all necessary facts, descriptions, and explanations? Complete Representation
What is not biased, slanted, emphasized, or otherwise manipulated to achieve a predetermined result or to influence users' behavior in a particular direction? Neutral Representatlon
What is information that is measured and described as accurately as possible, using a process that reflects the best available inputs? Free from Error
What is comparing similar companies information? Intercompany
What is comparing info from last quarter? Intracompany
What is an interactive quality of the relationship between two or more items of information? Comparability
What enables users to identify and explain similarities and differences between two or more sets of economic facts? Comparability
What does it mean to apply the same principles from period to period? Consistency
What enhancing characteristic is satisfied when different knowledgeable and independent observers can reach consensus that a particular representation is faithfull? Verifiability
What is information that is available to decision makers in time to influence their decisions? Timeliness (Timely)
What does information lack if it is not available when it is needed? Relevance
What does it mean for info should be comprehensible to users who have a reasonable knowledge of business and economic activities and who are willing to study the information carefully? Understandability
Who enjoys the benefits of the reporting of financial info? A diverse group of investors and creditors and by the company itself because by providing the info it can compete for and attract scarce economic resources.
What is the reasonable assurance that the costs of implemented a standard will not exceed the benefits? The determination of whether benefits of financial info is normally qualitative. Cost Constraint
What states that a business enterprise is legally and economically destinct entity so that financial statements can be prepared and reported specifically reported to that entity? Reporting Entity Assumption (Economic Entity Assumption)
What are the types of useful information? Return of investment, Risk, Financial Flexibility, liquidity, operating capability
What are the qualitative characteristics of accounting? Decision usefulness, relevance, faithful representation, enhancing characteristics, const constraint
What are the key accounting assumptions? Reporting Entity, Going Concern, period of time, monetary unit, mixed-attribute measurement, recognition, accrual accounting, conservatism
What are the guidelines, procedures, and practices that a company is required to use in recording and reporting its accounting information in its audited financial statements? GAAP
What is the assumption that the company will continue to operate in the foreseeable future? Going Concern or Continuity Assumption
What is the period of low sales to highest and back to lowest? Business Cycle
Why do companies prepare timely information at the end of each year and include them in filings? Period of Time Assumption
What is the assumption that accountants will use the national currency when reporting the financials? Monetary Unit
What model seeks to measure assets, liabilities, revenues, expenses, and other elements of the financial statements with the most relevant and faithful measurement possible? Mixed Attribute Measurement
What is the most relevant cost at acquisition? Historical or exchange price
What is the process of formally recording and reporting an item in the financials? Recognition
What is the process of measuring and reporting the economic effects of transactions, events, and arrangements on company's resources and claims in the period when the effects occur even though the cash flow is in a later period? Accrual Accounting
What is an economic effect that is recognized in the current period with cashflow in a later period? Accrual
What is the recognition of cash flow in the current period but the economic effect in a later period? Deferrals (Prepaid)
What determines the appropriate period in which a company creates economic benefits and can recognize revenues in income? Revenue recognition principle
What determines the appropriate period in which a company has consumed economic resources in conducting business operations? Expense Recognition Principle
What is the approach that accountants use to avoid overstating net assets and net income when these amounts are uncertain? Conservatism
Conservatism is sometimes described as ? Prudence
What is the primary purpose of a company's accounting systems? To record, organize, summarize, and report useful information to external financial statement users and stakeholders, as well as to the company's managers for making operating, investing, and financing decisions.
What is the residual interest in the company's assets after the liabilities have been satisfied? Shareholder's Equity
Assets = Liabilities + Contributed Capital + Beginning Retained Earnings + Revenues - Expenses + Gains - Losses - Dividends + Beginning AOCI + OCI
What is the amount of capital invested by owners Contributed capital
What is the cumulative amount of net income generated by the company minus the dividends distributed to owners? Retained Earnings
What is a measure of inflows of assets and the settlements of obligations from selling goods and providing services to customers? Revenues
What measures the outflows of assets that a company consumes and the obligations a company incurs in the process of operating the business? Expenses
What result from transactions in which the company sells assets or settles liabilities for more or less than their book values? Gain or Loss
What does the accounting system record? Information about how business activities change the company's balance sheet?
What involves the transfer or exchange of resources between the company and another party? Transaction
What is an occurrence that affects the company? Event
What is an agreement or a promise by the company with another party or entity? Arrangement
What accounting systems relies on debits equaling credits? Double entry accounting
What are assets, liabilities, and shareholder's equity accounts whose balances at the end of the period are carried forward? Permanent Accounts
What accounts are used to record changes in RE during the period and are not carried forward? Temporary Accounts ( Revenue, Expense, Gain, Loss, Dividend)
What create reductions in related accounts? Contra Accounts
What are the quarter reports often called? Interim Reports
What summarizes the amounts of the assets, liabilities, and shareholder's equity at the end of the period? Balance Sheet
What summarizes the results of the income producing activities for the period? Income Statement
What summarizes the cash receipts and payments during the period? Statement of cash flows
What provides info about the common shareholders' equity claims and how those claims changed during the period? Statement of shareholder's equity
What are the 5 steps of the accounting cycle? Record transactions in the journal / post entries to the ledger / prepare and post adjusting entries / prepare financial statements / prepare and close the temporary accounts
What system is used to constantly update inventory with every purchase? Perpetual
What is a return of inventory and a refund of the purchase price? Purchase return
What is it when a company keeps damaged inventory but a return is issued? Purchase allowance
Where are all the t accounts? General Ledger
Where are journal entries recorded in chronological order? General Journal
Where is all the information about an account stored? General Ledger
What is worksheet that lists all the general ledger accounts and their balances? Trial Balances
If debit and credit to not equal on a trial balance what do you do? Divide by 9
What is a transportation? when two digits in a number a mistakenly reversed
What is a slide? When digits are listed in order but with the wrong decimal
Why are adjusting entries made? so all revenues and expenses are recorded in the appropriate period and all assets and liabilities have correct ending balances
What arise when cash flows occur prior to recognition? Deferrals
What happens when cash flows occur after recognition Accrual
What inventory system requires adjustments? Periodic
What arises when customers pay before future delivery? Deferred Revenue or Unearned Revenue
What is an expense that is incurred but not paid? Accrued Expense
What are assets that represent amounts that a company is entitled to receive? Accrued Revenue
When would you use an accounting estimate? Depreciation, or to expected future events
What is the depreciable cost? difference between the historical cost and the residual or salvage value
What is the straight line depreciation? Expense = (Cost - Residual value)/Estimated Service Life
What inventory system records acquisitions of inventory to a purchases account? Periodic
COGAFS = BI + net purchases
COGS = COGAFS - EI
Prepaid Expense Debit Expense ... Credit Asset / Deferral
Deferred Revenue Debit Liability /// Credit Revenue / Deferral
Accrued Expense Debit Expense /// Credit Payables / Accrual
Accrued Revenue Debit Receivables /// Credit Revenue / Accrual
Use of Long Live Assets Debit Expense /// Credit Asset / Estimate
Future Events Debit Expense /// Credit Asset / Estimate
Close Purchases Debit Inventory /// Credit Purchases/ Periodic
Cost of Sales Debit COGS /// Credit Inventory/ Periodic
How do your prepare closing entries? Income Summary
Income summary closes to? Retained Earnings
Dividends close to? RE
When do you use reversing entries? After closing a temporary account at the end of the period
What is the amount paid initially to acquire an asset? Historical Cost or Acquisition Cost
What are monetary assets and liabilities normally recognized at? Present Value
What are examples of monetary assets? cash, accounts receivable, and notes receivable
What are examples of monetary liabilities? accounts payable, accrued expense, notes payable, mortgages, and bonds payable
What do you use to reflect the passage of time on monetary assets and liabilities? Adjusted Present Value
What is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date? Fair Value
What is a phrase that describes fair value? Market Based exit value
When determining fair value what are identical assets or liabilities on the measurement date? Level 1(most faithful representation)
When determining fair value what are similar assets or liabilities in active markets, or other observable input such as interest rates, for the asset or liability? Level 2 (Used when Level 1 is not available)
When determining fair value what are the company's best estimates and assumptions used to value the asset or liability? Level 3 (use only when level 1 & 2 are not available or the costs of obtaining them exceed the benefits)
What is market to market accounting? Fair Value Accounting
What is the amount a company would have to pa currently to acquire an asset it now holds, either through purchase or production? Current Replacement cost
When do you use current replacement cost? LOCOM
What is the net amount a company would receive if it sold an asset or the present value of cash flows it expects to realize from an asset? Net realizable value
When is net realizable valuation triggered? by a decline in the expected economic benefits of an asset to a value less than historical cost
What is a hybrid measurement between historical cost and fair value? Net Realizable value
What are common assets? Current Assets, Long term investments, PPE, Intangible, Other Assets
What are common liabilities? Current and Long Term, Other
What are common shareholder's equity accounts? Contributed Capital, Common Stock, APIC, RE, AOCI,Non Controlling Interests
What are cash and other assets that a company expects to convert into cash, sell, or consume withing 1 year or the normal operating cycle, whichever is longer? Current Assets
What is the average length of time taken by a company to spend cash to purchase or produce inventory, sell the inventory, and collect the receivables, converting them back into cash? Operating cycle
What is cash on hand and readily available in checking or savings accounts? Cash
What are highly liquid low risk securities such as money market funds and treasury bills that will mature in 3 months or less? Cash Equivalents
How are cash and cash equivalents measured? Present value
What includes debt and equity securities that are classified as trading securities, and debt securities that are classified as AFS (fair value), and HTM securities (historical cost)? Short Term Investments
What are accounts receivable and notes receivable valued at? Net realizable value
What are goods held for resale in the normal course of business and include, raw materials, WIP, and FG? Inventory
What is inventory measured at? Lower of historical cost or market value (either replacement cost or net realizable value
What are prepaid items listed at? Historical cost of the remaining amounts
What is an investment that is being held for longer than 1 year or operating cycle? Long term investment
What are long term investments listed at? Fair value, historical cost, or present value depending on the type of investment
What are long lived tangible assets used in operations? PPE
What are substantial improvements made to an asset on a lease classified as? Leasehold Improvements
What are new productive building classified as? Construction in Progress
Depreciation for Tangible Assets
Depletion for natural resorces
Amortization for intagibles
What are noncurrent economic resources that have no physical or financial nature? Intangible assets
Patents, franchises, licenses, and computer software are are amortized over their useful lives and reported on the balance sheet at their adjusted historical cost ? Intangible assets with finite useful life
Trademarks or brand names are not a not amortized because the are indefinite Intangible assets with indefinite useful lives
What does impairment arise? when the earning power of an intangible asset has been reduced to the point where its fair value is less than its historical cost
What is the representation of the purchase premium paid in the acquisition of a company? Goodwill
What are all the miscellaneous assets that do not fit in a specified category? Other assets(Prepaid long term items, deferred tax assets, advances to officers, security deposits, assets temporarily restricted by foreign countries
What are obligations the company expects to satisfy with the year? Current Liabilites
What are some current liability accounts? Payable and Accrued Expenses, Deferred Revenues, Short Term Debt, Current maturities of long term debt
What are obligations satisfied after a year or operating cycle? Long term liabilities
What are the 3 types of long term liabilities? Long term accruals, long term financing activities, Other liabilites
What is the residual interest of the shareholders in the assets of the corporation after deducting liabilities? Shareholders' Equity
What is recognized when the corporation raises capital by issuing shares directly to shareholders? Contributed Capital
What are the components of CC? Common Stock, APIC, treasury stock, preferred stock
What carries the right to vote and to share in residual profits? Common Stock
What is the minimum value of the stock? Par Value
What is the amount over a par value? APIC
What is the name of the contra account where the re-acquisition of stock is recorded? Treasury Stock
What is the normal balance of the treasury stock account? Debit
What stock has different ownership features from common stock , including the first right to a specified dividend, if one is paid? Preferred Stock
Contributed Capital = Common stock + APIC + Preferred Stock - Treasury Stock
What is the total amount of corporate net income that has been earned but has not been distributed to shareholders as dividends? Retained Earnings
What is the cumulative amount of other comprehensive income items? Accumulated Other Comprehensive Income
What is included in other comprehensive income? unrealized gains or losses, translation adjustments of currency, certain gains or losses on derivative financials and certain pension plans
What is the account when one company owns the majority of common shares of another company but not all of it? Non controlling interests
What is the purpose of the income statement? inform investors, lenders, creditors, and other stakeholders about a company's financial performs so they can make decisions
What are the decisions that are derived from the income statement? Evaluate the profitability and assess the return on investment in the company / Assess the company's operating capability and financial performance for the current period and over time / Evaluate management performance
What are the decisions that are derived from the income statement? Part 2 Predict the company's futurne income and cash flows / Understand the components of income / asses the company's risk / compare performance to other companies / asses the impact of economic factors on the company
What are increases in assets or settlements of liabilities from delivering or producing goods, rendering services, or other activities that are the company's ongoing major or central operations? Revenue
How should a company recognize revenue? To depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services
what is an agreement between two or more parties that creates enforceable rights and obligations? Contract
What is a promise in the contract to transfer a good or service to the customer? Performance obligation
What is the amount of consideration (payment) a company expects to collect in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of 3rd parties? Transaction Price
If there is more than one obligation in a contract, what must you do with the transaction price? Allocate it
What arise from outflows of using up assets or incurring liabilities from delivering or producing goods, rendering services, or carrying out other activities that are the company's ongoing major or central operations? Expenses
What are the general rules for expense recognition? Association of Cause and Effect, Systematic and Rational Allocation, Immediate recognition
What are increases in the equity of a company from peripheral or incidental transactions and other events and circumstances during a period, except those that result from revenues or investments by owners? Gains
What are decreases in the equity of a company from peripheral or incidental transactions and other events and circumstances during a period, except those that result from expenses or distribution to owners? Loss
What are the major components of the income statement? Revenues, Operating Income, Income from continuing operations, results from discontinued operations, net income, earnings per share
What are the items in revenue? COGS, Operating expenses, other operating income items (gain or loss)
What are the items of operating income? Interest Expense, interest and dividend income, unusual and nonrecurring gains and losses, income taxes associated with continuing operations
What are the items of results from discontinued operations? Income from operations discontinued components, gain from disposals of discontinued components
Which type of income statement classifies its items into two groups, revenues and expenses? Single-Step Income Statement
What type of income statement classifies its items into individual accounts and sub totals? Multiple-Step Income Statement
What are increases in assets or settlements of liabilities from satisfying performance obligations to customers by delivering or producing goods, rendering services, or other activities that are the company's ongoing major of central operations? Gross Sales revenues
What is the cost of the inventory items sold to customers during the period? COGS
Under what inventory system would a company record transactions into a COGS account at the time of each sale and report the total for the period on its income statement? Perpetual Inventory System
Under what inventory system would a company not reduce inventory at the time of sale and must calculate its cost of goods sold based on a physical inventory take at the end of the period? Periodic Inventory System
Beginning inventory + net purchases = Cost of goods available for sale
What are included in net purchases? Gross purchases, freight costs, and any other costs to acquire the inventory, (subtract purchase returns, allowances and discounts)
How do you determine COGS? COGAFS - Ending Inventory
How do you determine Gross Profit? Net sales - COGS
What are those primary recurring costs incurred to generate sales revenues and conduct business operations? Operating expenses
What items are included in Other operating income items? gains, losses from asset sales, inventory write down, impairment charges, restructuring charges, litigation charges, or anything else that is not normal
What is sales revenue - various expense related to the sales and business activities and other income items related to operating activities? Operating Income
What immediate after the operating income section? significant recurring items of income and expense as well as gains and losses, which are not directly related to the primary operations but result from the financing and investing activities of the company
What involves assigning a corporation's tax obligation as an expense across various accounting periods because of temporary timing differences between its taxable income and pretax financial income? interperiod tax allocation
What involves apportioning a corporations total income tax expense for a period to the various components of its net income and other comprehensive items if any? Intraperiod tax alloaction
What reports the company's income from ongoing recurring business activities? Income from continuing operations?
What is the link between a corporation's income statement and its balance sheet? Retained Earnings
What financial statement is not required if an income statement and a balance sheet are present? Statement of Retained Earnings
When should companies estimate loss contingencies and deduct amounts from income and assets? Information available prior to the issuance of the financial statements indicates that it is probable that an asset has been impaired at the date of the financial statements / the amount of loss can be reasonably estimated
What method is used when companies record uncollectible accounts in the year of sale, based on an estimate of the amount of uncollectible accounts? Allowance Method
What approach of the allowance method is a balance sheet approach? Percentage of Outstanding A/R
What is the purpose of the percentage of outstanding A/R allowance method? to determine the ending balance in Allowance for Doubtful Accounts, and therefore the appropriate net realizable value of A/R
How does the aging of A/R work? First classify the individual accounts receivable based on the length of time they have been outstanding, and then estimates the allowance for bad debts by applying appropriate bed debts percentage to each age category
Debit Bad Debt Expense Credit Allowance for Doubtful Accounts
What is an analysis of the difference between the company's cash balance in its accounting records and the cash balance reported on its bank statement to determine the correct cash balance? Bank Reconciliation
What is a check written by the company and deducted from its cash balance that the bank has not yet deducted from the balance reported on the bank statement. Outstanding Check
What is a cash receipt added to the company's cash balance but not yet added to the balance reported on the bank statement? Deposit in Transit
What are the charges made directly by the bank? fees such as service charges, cost of checks, etc
What is the term used for the customers check that does not have enough money to back it? NSF or Not sufficient funds check
What is step 1 of bank reconciliation? Compare the deposits listed in the company's records with the deposits shown on the bank statement
What is step 2 of bank reconciliation? Compare the checks listed in the company's records with the checks shown on the bank statement
What is step 3 of bank reconciliation? Identify an deposits or charges made directly by the bank that are not included in the company records
What is step 4 of bank reconciliation? Determine the effects of any errors
What is step 5 of bank reconciliation? Complete Bank Reconciliation
What is step 6 of bank reconciliation? After completing the bank reconciliation the company makes journal entries to bring its accounts up to date
In FOB Shipping point, when does the buyer take control of the inventory? at the shipping point when the goods are transferred to the buyer or a shipping company (record sale when shipped)
When is the title of the goods transferred for FOB Destination? When the goods are where the buyer specified them to be (Record sale when reached final destination)
Who is the company delivering the goods and maintains control? Consignor
Who acts as a selling agent of the consignor? Consignee
The consignee does not do what? Recognize inventory
What assumes costs move through inventory in chronological order with the first in being the first to go out? FIFO
In periods of rising purchase prices what is FIFO's COGS? EI? COGS is lower / EI is higher
What assumption has the cost of ending inventory and COGS based on an average of COGAFS? Average Cost
When is the weighted average method used? Periodic System
Weighted average cost per unit = COGAFS / Units available for sale
When is the moving average method used? Perpetual
What assumption is that the last products in will be the first out? LIFO
In a period of rising prices what is LIFO's COGS? EI? COGS is higher / EI is lower
If a company uses lifo for income tax purpose what does it use for its financials? LIFO (Lifo Conformity Rule)
What brings units with a cost from previous years into COGS and produce an unrealistically high income? LIFO Liquidation
What are some of the factors to decide between fifo and lifo? Tax consideration, bookkeeping and other related costs, conceptual issues, stock price effects, physical flow of goods, contracting considerations
What requires that a company write down its inventory to its market value when the inventory's market value has declined to an amount less that its cost? Lower of Cost or Market (LCM)
What is the estimated selling price of the inventory in the ordinary course of business, less reasonably predictable costs of completions, disposal, and transportation? Net Realizable Value
What cost flow assumptions use NRV? FIFO, Average cost, Specific ID
What is the cost the company would pay to replace the item? Replacement cost
What cost flow assumptions use replacement cost? LIFO and Retail Inventory Method
What is the pricing ceiling on market value that prevents inventory from being valued at an amount that exceeds the net amount the company could realize by selling it? Net Realizable Value
What is the price floor for the market value? Net Realizable Value - a normal profit margin
How do you apply the LOCOM rule? Choose an approach to implement the rule / determine the market value / compare the market value to cost / Report the results in the financial statements
Review Inventory Errors Pg 8-24
If the effective interest rate is greater than the contract rate then the bond is at a ? Discount
If the effective interest rate is less than the contract rate then the bond is at a ? Premium
How do you determine the selling price of a bond? the effective rate is applied to both the future principal and periodic interest payments
What is the yield when bonds are sold at a discount? Higher than the contract rate (Interest expense > interest Paid)
What is the yield when bonds are sold at a premium? Lower than the contract rate (Interest Expense < Interest Paid)
Interest Expense =? Effective Interest Rate X Book Value at the beginning of the period
What is the book or carrying value? a bonds face value plus and unamortized premiums or discounts
What is the difference between the interest expense computed under the effective interest method and the cash payment? Discount or Premium
What is the type of investment that is not sufficiently large enough to allow control or exert significant influence over the other company? Minority Passive Investment <20%
What are debt securities for which the company has the positive intent and ability to hold until maturity? Held-to-Maturity Securities
What are all equity securities and investments in debt securities that are purchased and held principally to sell in the near term? Trading Securities
What are debt securities that are not classified as held to maturity or trading? Available for Sale Securities
How are HTM securities reported? Amortized cost
How are Trading securities and afs securities reported? Fair Value - on balance sheet
Where are changes in trading securities reported? Income statement and a part of net income
Where are changes in AFS reported? Other comprehensive income and shown in AOCI
What are investments that have significance when the investor owns between 20% and 50% of the voting common stock? Minority Active Investments or Equity Method Investments
What occurs when the investor controls the investee through an investment in equity securities? Consolidation
What type of investment has control over the investee? 51% >? Majority Active Investment
How do you record the value of htm? at cost
What is an increase or decrease in the fair value of an investment security? Unrealized holding gain or loss
What represents a change from one generally accepted accounting principle to another generally accepted accounting principle? Changes in accounting principle (think fifo to lifo)
What is a revision of an estimate used in the accounting process? Change in accounting estimate ( think change in life span)
What represents a change in the type of entity being reported? Changes in reporting entity (think acquiring more or less of a company and changing consolidated statements)
What are the result of mathematical mistakes, mistakes in the application of GAAP, or the oversight or misuse of facts that existed when the financial statements were prepared? Errors
What method of reporting changes requires that any previously issued financial statements reported for comparative purposes be revised to reflect the impact of the accounting change? Retrospective adjustment method
What method of reporting changes does not require an adjustment to previous financial statements. Instead it is just accounted for in future periods? Prospective Method
What happens if an error is discovered? Prior Period Adjustments are made
What are accounted for in a retrospective application ? Change in principle
What is accounted for as a prospective adjustment? Accounting estimate
What is accounted for retrospectively to assure the same entity is in place? Change in reporting entity
What is accounted for as a prior period adjustment? Errors
What are the steps of a prior period adjustment? Compute the cumulative effect of the error on prior financial statements / prepare adjusting journal entries for the book values of assets and liabilities affected / adjust financials to reflect specific effects of error / disclose info in notes
What type of accounting errors are automatically corrected in the next period even if they are not discovered? Counterbalancing errors
What are the errors that are not offset in the next accounting period? Noncounterbalancing errors
What is a comprehensive, principles based revenue recognition model that specifies how and when companies should recognize revenue? Revenue from Contracts with Customers
What is the new standard for revenue recognition? a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services
What types of contracts are not covered by the new revenue standard? Leases, Insurance contracts, financial instruments, guarantees, non monetary exchanges between two companies in the same line of business in order to facilitate sales to customers (interest and dividends are also excluded)
Who is the party that has entered into a contract with a company to obtain goods or services that are an output of that company's ordinary activities? Customer
What is an agreement between two or more parties that creates enforceable rights and obligations? Contracts (written, oral, implied)
What are the criteria for a contract? All parties approve the contract and commit to perform their obligations / identify each party's rights regarding the goods to be transferred / identify payment terms / has commercial substance / each party will collect the consideration it is entitled
What is a contract in which the seller has not transferred the goods or services to the customer nor has it received, or is entitled to receive, consideration in exchange for the proposed goods or services? Wholly underperformed contract
A company must combine contracts if one or more of the following are satisfied: negotiates contracts as a package with a single commercial objective / consideration to be paid is dependent on another contract / goods or services promised in the contracts comprise a single performance obligation
What is an agreed upon change in the goods or services that are to be delivered and or the price of the contract? Contract modification or change order or contract amendment
What must happen for a modification to be recognized? the modification is distinct and separable from the previous contract terms / the price of the contract increases by an amount of consideration that reflects the entity's stand alone selling prices of the additional promised goods or services
What modification results in a new cow contract going forward? Prospective
What modification results in the old contract being adjusted to represent the modifications? Cumulative catch up adjustment
What is a promise in a contract with a customer to transfer goods or services? Performance Obligation
When does the seller create a compelling expectation that it will provide the promised goods or services based on its customary business practices, published policies, or specific statements? Constructive Obligation
When is a promised good or service considered distinct? customer can benefit from the resource on its own or with resources that are readily available AND the good is distinct withing the context of the contract because the seller's promise to transfer the good or service to the customer is seperate
A promise is separately identifiable if: the good is not significantly integrated with other promised goods or the good doesn't significantly modify or customize another good in the contract or the good is not highly dependent on other goods
What is it called when a company allows the use of its trademarks and sells product to stores, grocery companies, and food service accounts in exchange for payments? Licensing
In a principal agent contract who has the performance obligation to provide goods or service to customers? Principal
In a principal agent contract who has the performance obligation to arrange for goods or services to be provided by the principal to the customer Agent
What is the amount of consideration to be recognized the entity expect to be entitled in exchange for providing the promised goods or services to the customer? Transaction Price
What are some factors of the transaction price? Time value of money, variable consideration, noncash consideration, consideration payable to a customer
What is a contract term that could cause the amount of consideration received to be less than the amount expected? Applicable Constraint
To determine the transaction price when there is variable consideration the seller must: estimate the total amount to which it expects to be entitled and determine whether the is an applicable constraint on the variable consideration
How do you estimate variable consideration? Expected value approach or the most likely amount approach
What approach does a company identify the range of possible outcomes and the probabilities associated with each outcome? Expected Value approach
What approach does consideration is the single most likely amount within a range of possible variable consideration amounts? Most likely amount approach
For a performance obligation to be satisfied over time, at least one of the following have to be met: customer simultaneously receives and consumes the benefits of the sellers performance as the seller performs / seller creates or enhances an asset that the customer controls as the asset is created or enhanced /
^^^^ the sellers performance does not create an asset with an alternative use to the seller. in addition, the seller has a right to payment for performance completed to date
What are the direct measurements of the value of the goods and services transferred to the customer during completion of the contract? Output Methods
What measure progress over time based on the seller's efforts to satisfy the performance obligations? Input Methods
What are the two popular input methods? Cost-to-cost method and efforts expended method
What measures progress toward satisfaction of the performance obligation by comparing the costs incurred to date with the expected total costs for the contract Cost to cost method
What measures progress toward satisfaction of the performance obligation by the work performed to date, such as labor hours, labor dollars, machine hours, or material quantities compared to the expected to work? Efforts expended method
What are the costs the seller incurred by obtaining the contract that would not have been incurred if the contract had not been obtained? Incremental Contract
To be an incremental cost, the following criteria must be met cost must directly relate to a contract that the company can identify / cost must generate or enhance resources that will be used in satisfying future performance obligations / cost must be expected to be recovered
What arises when the sellers right to consideration from a customer is conditional? Contract Asset
What is the seller's unconditional right to receive consideration? Receivable
What represents the seller's performance obligation and arises when a customer's payment of consideration occurs prior to the seller's performance under the contract? Contract Liability
What is the inventory account on a long term contract to record all costs? Construction In Progress
Debit Receivable Credit Partial Billings
Created by: Heritage2016