Notecards I made from Wiley's 2012 CPA Exam Review
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| What is the single source of US GAAP for nongovernmental entities? | The Accounting Standards Codification (ASC)
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| What is included in the Accounting Standards Codification? | All GAAP and relevant literature issued by the SEC
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| How is the Accounting Standards Codification updated? | The FASB issues Accounting Standards Updates (ASUs)
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| What is the objective of Financial Reporting? | Provide financial info about an entity that is useful to existing and potential investors, lenders, and other creditors in making a decision about providing resources to the entity.
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| What are the four fundamental recognition criteria? | Definition, measurability, relevance, and reliability
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| Define financial capital concept | Earnings may not be recognized until investment in asset is returned.
Ex. Invest $10 in inventory, Sell for $15, costs $12 for new one... Balanced once $10 is returned, $5 is listed as income
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| Define physical capital concept | Earnings may not be recognized until the current replacement cost of an asset is returned.
Ex. Invest $10 in inventory, Sell for $15, costs $12 for new one...
Balanced once $12 is returned, $3 is listed as income
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| Per SFAC 8, What qualities relate to both Relevance and Faithful Representation? | Comparability, verifiability, timeliness, understandability
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| Per SFAC 5, What is the process of formally reporting an item in the financial statements? | Recognition
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| Per SFAC 6, What does comprehensive income include? | All changes in equity during a period except those resulting from an investment by owners or a distribution by owners
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| According to SFAC 6, What is realization? | Realization is the process of converting noncash resources to claims to cash through the sale of assets
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| Is Money realized when equipment is sold for a note receivable? | Yes, because a note qualifies as a claim to cash
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| When does realization occur? | At the time of sale rather than when cash is collected
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| What is the concept the supports the issuance of interim reports | Relevance, because it provides both predictive and confirmatory values- making it relevant
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| Per SFAC 6, Define Revenues, including two essential characteristics | Revenues are inflows of assets or settlements of liabilities or both during a period as a result of an entity's primary operations.
1. arise from a company's primary earnings activity
2. are recurring or continuing in nature
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| Per SFAC 6, What is the common quality shared by all assets? | Service potential or future economic benefit
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| Define Present Value | Present Value is the current measure of an estimated future cash inflow or outflow, discounted at in interest rate for the time between today and expected cash flow date
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| When used at fresh-start measurements and initial recognition, what is the only objective of Present Value? | To estimate fair value
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| Per SFAC 7, a successful Present Value measurement would consist of what elements? | Estimate of the future cash flow, Expectations about possible variations (in Time and/or Money), the Time value of money (represented by risk-free rate of interest), and the price for bearing the uncertainty inherent in the asset/liability
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| Computing Present Value: Expected cash flow approach. Describe. | Only the time value of money is included in the discount rate; other factors are accounted for in arriving at risk-adjusted expected cash flows
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| Computing Present Value: Discount rate adjustment (Traditional) approach. Describe | All adjustment factors are embedded in the discount rate...
Expectations about possible variations (in Time and/or Money), the Time value of money, and the price for bearing the uncertainty inherent in the asset/liability
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| Per SFAC7, the most relevant measure of a liability should always reflect what? | The credit standing of the entity obligated to pay
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| What does SFAC7 include and specifically exclude? | Deals with measurement issues and includes a framework for using future cash flows for initial recognition/fresh-start measurements, and introduces the expected cash flow approach. Excludes recognition q's (when to measure).
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| Per SFAC7, how does expected present value calculate possible cash flows when the timing is uncertain? | uses the same interest rate to find the present value discount amount, then multiplies the cash flow by each PV discount amount and the corresponding probability of receiving the cash in that period. Finally adding up the resulting sums of each period.
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| Depreciation and amortization conventions, as well as interest methods are all grounded in what type of cost? | Historical Cost
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| When a company ends operations, how should the assets be valued? | Net Realizable Cost, as NRV would show the probable future benefits (price expected to be sold at)
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| What entities/manuals/boards/bulletins are included in the FASB Accounting Standards Codification? | Financial Accounting Standards Board, Emerging Issues Task Force Abstracts, Accounting Principles Board Opinions, Accounting Research Bulletins, Accounting Interpretations, AICPA Statements of Position, AICPA Audit and Accounting Guides, Practice Bulletin
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| Revenue from the sale of a product may be met only if all of the following conditions are met. Name them. | Fixed price, buyer has paid or is obligated to pay (not contingent on product resale), buyers still must pay if damaged, buyer is independent from seller, seller has no obligations for resale, future returns can be estimated
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| Define Period Costs. | Not assignable to a product, expensed due to passage of time by immediate recognition if the future benefit can't be measured (advertising) or rational allocation if benefits are produced in future periods (asset depreciation)
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| Define Product costs | associated with a product and are expensed when the unit is sold
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| Define Accrual Accounting | Recognition of revenue/expense, but cash not received/paid
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| Define Deferral Accounting | Cash is received/paid but revenue/expense is not recognized until revenue/expense is earned/incurred
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| In Accrual Accounting, what happens to unearned revenue that expires and is not used? (i.e. a gift card) | Becomes earned!
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| How do you find COGS? | Beg Inv + Net Purchases - Ending inventory
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| Define an installment sale and what is the calculation process? | PROFIT IS RECOGNIZED IN PROPORTION TO CASH RECEIVED
1. Find Gross profit rate (Sales-Cost)/Sales
2. Multiply Cash paid for period by Gross Profit rate
3. Recognize gross profit for period
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| When does Cost Recovery Method recognize profit? | When the cumulative amount paid is greater than the cost of the asset sold
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| When is it acceptable to use the cost recovery method of revenue recognition? | When the uncertainty of collection is so great even the installment method is precluded. (i.e. having no reasonable basis for estimating collectibility)
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| When can a franchise fee be recognized as revenue by the franchisor? | Only upon substantial performance of their initial service obligation
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| In a Real Estate sale, what four criteria must be met to recognize profit in full at the point of sale? | sale is consummated, buyer demonstrates ability to pay for the property, sellers receivable is not subject to future subordination, seller has transfered all rights to the buyer
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| In Real Estate, When should the reduced profit method be used? | Only when the initial investment is adequate enough to show a commitment to pay, but the continuing investments are not adequate
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| In Real Estate, When should the deposit method be used? | Until the sale is consummated, and buyers initial+continuing investments are not adequate enough to reassure the seller of full payment
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| For multiple-deliverables arrangement, what two conditions must be met? | 1. the item has value on a stand alone basis
2. If a right of return arrangement is used, the undelivered item must be substantially in control of the vendor
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| Under the milestone method of revenue recognition, what amount of revenue is recognized when a substantial milestone is reached? | Contingent revenue is recognized in its entirety
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| If the outcome of rendering services cannot be measured, what revenue recognition method is required by the IFRS? | Cost Recovery Method
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| When management is selecting accounting policies, to whom should they refer to in IFRS? (What is the highest level in the international hierarchy?) | Apply a standard from IFRS (<- The highest level)
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| If a company is adopting IFRS for the first time, where should any required adjustments be presented? | Retained earnings or if appropriate another equity category
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| When adopting IFRS for the first time, when should the "date of transition to IFRS be?" The "first IFRS reporting period?" | Date- the beginning of the earliest period for which full comparative info under IFRS is in the first IFRS financial statement
First- the latest reporting period covered by an entity's first IFRS financial statements
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| When may an entity change accounting principles? | 1. If it is required by a new accounting pronouncement
2. can justify the use of an alternative principle because is is preferable
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| When an entity changes accounting principles, only the direct effects must be recognized in prior periods. What are direct effects? | i.e. change in inventory balance due to change in inventory valuation. Related changes such as impairment and deferred taxes must be recognized too.
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| When an entity changes accounting principles, indirect effects of the change are reported in the period the change is made. What would an indirect effect be? | Any change to current or future cash flow as a result from the change. Ex. change in profit sharing or royalty payment based on revenue or net income
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| Only one of the three conditions must be met for the time to be considered impracticable to determine the cumulative effect an entity's change in accounting principle causes. Name the 3 conditions. | 1. After a reasonable effort the entity is unable to
2. assumptions about managements intentions are required that cannot be independently substantiated
3. significant estimates are required and it is impossible to obtain objective info about the estima
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| What must the notes to the financial statements include when an entity changes accounting principles? | 1. nature and reason for the change
2. method of applying the change
3. describe prior period adjustments
4. the effect of the change
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| If a change in an accounting estimate is effected by a change in principle, what is it treated as? How about the financial statement notes? | 1.Treated as a change in estimate (e.g. change in depreciation method)
2. Footnotes follow rules of change in principle
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| Does a change in an estimate mean retrospective changes must occur? | No, only the period of change and future periods
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| When a change in the reporting entity occurs such that a change in the structure results in financial statements that represent a different/changed entity, how is it treated on the financial statements? | Change is applied to ALL prior periods financial statements. Notes disclose type of change, reason, and effects on income
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| What requirements must be met to be reported as discontinued operations? | 1. operations and cash flows have been eliminated
2. no more significant involvement in the company
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| What requirements are there for a company to have a entity qualify for treatment as a discontinued operation? | assets, operations, and cash flow must be clearly distinguishable from the rest of the company
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| When is it recognized that an entity is a discontinued operation after all requirements are met? | the first period it is "held for sale"
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| How are discontinued operations treated retroactively in financial statements? | revenues, cogs, and operating expenses (including income tax) are removed from the continuing operations section and netted into one figure- 'income/loss from discontinued operations'
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| Define comprehensive income | change in equity of a business as a result of nonowner sources. (ex. unrealized gains/loses debt security HELD FOR SALE, foreign currency translations, pension liability adjustments)
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| How may the comprehensive income be displayed? | 1. continuation from net income at the bottom
2. Separate statement that begins with net income
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| When a reclassification adjustment is needed in comprehensive income, how is the tax dealt with? | The adjustment is done net of tax. The amount realized is taxed per normal steps, as it is realized. And unrealized gains are shown net of tax, so the adjustment is done net of tax to avoid showing the amount twice
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| Where is comprehensive income closed out to on the balance sheet? | Accumulated other comprehensive income located under owners equity... The net amount is closed to retained earnings.
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| Are EPS amounts required to be presented for comprehensive incomes? | No
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| What are the exceptions for material transactions between related parties not needing disclosure? | 1. compensation agreements, expense allowances and similar items in the ordinary course of business
2. transactions which are eliminated in the preparation of consolidated financial statements
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| When issuing the financial statements, what are the differences between a recognized and unrecognized subsequent event? | Recognized- condition existed at balance sheet date, and must be recognized (i.e. allowance uncollectible accounts, warranty recall)
Unrecognized- Condition only existed after balance sheet date (i.e. fire) if cause misleading F/S, a footnote is made
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| What accounting disclosures are required as initial footnote disclosures? | 1. Accounting Principles used when there exist alternatives
2. Principles peculiar to an industry
3. Unusual applications of Accounting Principles
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| When determining fair value, how are transaction costs, such as cost to sell, used? | Fair value is not adjusted for transaction costs, but is adjusted to determine the correct market (i.e. adjusted for costs necessary to transport)
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| How are a held-to-maturity security and a available-for-sale security treated if the company chooses to measure their worth with the fair value option? | Both: unrealized gains/losses are reported in earnings for period
A-F-S: reported on income statement not other comprehensive income
H-T-M: No longer at amortized cost, marked to fair value. Still reported on cash flow as operating or investing activity
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| If an asset is part of a group of assets how is it valued by the fair value? | 'Highest and best use' to maximize the value (choose greatest value between separate or collective asset)
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| Under constant dollar accounting, what are non monetary items that require restatement to current dollars? | inventory, property, plant, equipment, and unearned service revenue
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| Where are constant dollar accounting and current cost accounting methods on a financial statement? | As supplementary information
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| What is the formula for constant dollar accounting? | Historical Price x (Current Price Level Index/ Historical Price Level Index)
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| In constant dollar accounting what is done with monetary items? | Simply restated at the same levels because they are already cash values
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| When inflation occurs, and you have a liability, when will it be a purchasing gain? | When it is monetary (you technically owe less money for an object which is now worth more)
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| Under current cost accounting, how do you determine a holding gain (loss)? | Current Price- Historical Price
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| How is depreciation calculated using current cost accounting? | By taking the average of the cost for the equipment during the period and then depreciating
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| How is the current cost for equipment and inventory measured under current cost accounting? | as the lower of current cost or recoverable amount
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| Under current cost accounting, can holding gains be recognized on both realized and unrealized gains? | Yes, measure the increase from beginning of year/purchase price to end of year/sale
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| What are the four areas of disclosures that pertain to risks and uncertainties? | 1. Nature of operation
2. State use of estimates to prepare financial statements
3. Significant estimates (ones that may change, change would be material)
4. Current vulnerability due to concentrations (reliance on one customer, market/geo. area locate
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| What are other comprehensive bases of Accounting that may be used to prepare financial statements? | 1. Cash Basis
2. Modified Cash Basis
3. (Income) tax basis
4. Regulatory Basis
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| How do income tax basis financial statements differ from GAAP? | Recognize certain expenses/revenues in different periods
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| Define Prospective financial information. | Any financial information about the future
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| At what point (why now, not before?) must a company to file an SEC report? | assets of more than 10 million, 500 or more shareholders, traded in the market place
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| SEC Report. Define Regulation S-X | describes form and content of financial statements
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| SEC Report. Define Regulation S-K | describes requirements for info and forms required by S-X
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| SEC Report. Define Regulation AB | describes reporting requirements for asset-backed securities
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| SEC Report. Define Fair Disclosure (FD) | mandates publicly traded companies must release material information to all investors simultaneously
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| SEC Report. Define Form S-1/F-1 | registration statement
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| SEC Report. Define Form 8-K/6-K | information about material events (mergers, acquisitions, changes in CEO, changes in operations, changes in auditors) must be filed within 4 days of event
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| SEC Report. Define Form 10-K/20F | annual report
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| SEC Report. Define Form 10-Q | Quarterly Reports- reviewed not audited by accountants
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| SEC Report. Define Schedule 14A | Proxy Statement
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| What financial statements are presented by Trusts? | 1. Statement of assets and liabilities
2. statement of operations
3. statement of changes in net assets
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| In terms of fair value, what are level 1 inputs? | quoted prices of the same asset/liability in a market that can be accessed at the measurement date
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| In terms of fair value, what are level 2 inputs? | inputs other than level 1 quoted pries that are observable for the asset/liability, either directly or indirectly
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| In terms of fair value, what are level 3 inputs? | unobservable inputs for the asset/liability
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| How long does an accelerated filer have to file form 10-K with the SEC? | 75 days
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| On what basis are financial statements of trusts generally presented? The assets? | Accrual
Assets- Fair Value
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| What is included in a complete IFRS financial statement? | Statement of Financial Position
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Cash Flows
Notes containing significant accounting policies and explanations
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| In IFRS how many years must be restated when an entity retrospectively applies an accounting policy, restates its statements, or reclassifies items? | 3 years for comparative purposes
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| In IFRS Statement of Financial Position, assets can be classified as current or non current. Define Current. | It is expected to be realized/used within 12 months, held for trading purposes, or is a cash or unrestricted cash equivalent
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| Under IFRS, where is accumulated other comprehensive income reported? Non controlling interests? | Under shareholders equity
Non controlling: separate item in the equity section
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| Under IFRS how can the statement of comprehensive income be presented? and what is on it? | Presented: 1 or 2 statements
On it: revaluation surpluses for P,P,&E, gains/loses on: benefit plans, currency translations, remeasured available for sale financial assets, hedging instruments
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| Under IFRS, how may operating expenses on the income statement be classified? | Nature or Function
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| Under IFRS, on what basis may the statement of cash flows be presented on? | Direct Basis or Indirect Basis
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