Notecards I made from Wiley's 2012 CPA Exam Review
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| What is included in a personal financial statement? | 1. statement of financial condition (estimated FV of assets, liabilities, income taxes, and net worth at specific date)
2. Statement of changes in net worth (shows main sources of increases(decreases) of net worth over the time period)
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| In a personal financial statement, how should assets and liabilities by listed? | Order of liquidity and maturity, not a current/noncurrent basis
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| In a personal financial statement, what is done with income tax? | include unpaid income tax, and estimated income tax on difference between current value (amount) of assets (liabilities) and their respective tax bases as if they were realized or liquidated
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| In a personal financial statement, how is a investment in a separate entity shown if it is a going concern? | As one value, net of payables and cost
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| What are the primary purposes of interim reporting? | provide information which is more timely than annual reports, and highlight turning points of a business that may be buried in an annual report
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| In interim reporting, what is the discrete view? integral view? which is used? | 1. Discrete- interim period is a separate accounting period
2. Integral- interim period is integral part of annual report. Reflect expectations of annual report, use special accruals, deferrals, and allocations.
3. Integral
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| How are income taxes accounted for in interim reporting? | (Year to date income * estimated annual effective tax rate) - expense recognized in previous quarters
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| Interim reporting, When are discontinued operations recognized? Extraordinary items and their materiality? | 1. interim period as incurred
2. interim period as incurred. materiality evaluated based on expected annual results
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| If an expenditure clearly benefits more than one interim period, what period should it be allocated in? | allocated among the periods that benefit
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| Does IFRS mandate interim reporting? | no
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| What is the purpose of segment reporting? | assist investors and lenders in assessing future potential of an enterprise by better showing trends, opportunities, risk factors of individual segments of a company
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| What is the approach to segment reporting? Who doesnt use segment reporting? | 1. management, based on the way the management organizes segments internally
2. not-for-profit organizations nor nonpublic enterprises
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| How is an operating segment defined? What are the three criteria a segment must hit one of to be considered significant? | 1component earn revenues incur expenses having available separate financial information
2aSegment revenue 10%orMore total revenue
b.segment profit/loss 10%orMore greater of combined profit or combined loss segments
c.segment assets 10%orMore total asse
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| In segment reporting, what should be done with costs that serve to benefit more than one operating segment? | allocate to segment if they are included in the measure of the segments profit or loss used internally
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| What happens if a segment meets the 10% test in the past and is expected to in the future, but fails in the present? Or rarely does and assumed not to in future, but does in present? | 1. include in current year anyway for sake of comparability
2. may be excluded to preserve comparability
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| What are the limitations/minimums to the number of segments reported? | enough separately reported segments so that 75% of unaffiliated revenues are shown, if not additional segments must be designated as reportable till meet test. # segments shouldnt exceed 10 otherwise info is less useful
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| How does IFRS differ from US GAAP in segment reporting? | It doesnt
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| Should a partnership also include the individual partner's personal assets and liabilities? | No, partnership is a separate accounting entity. Assets contributed are recorded at fair market values, liabilities assumed are recorded at present values
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| Upon formation what amount is credited to each partner's capital account? What is a drawing account? | 1. difference between the fair market value of the assets contributed and present value of liabilities assumed from partner
2. used as clearing account for each partner's transactions. only net effect of each periods activity shown in capital account
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| In a partnership agreement, how does the bonus method account for unidentifiable assets? | Not recognized
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| How do partners distribute partnership income or loss? | written agreement specifying manner it should be done. If agreement is absent, divide profit and loss equally
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| What happens in a partnership dissolution? (define) | A partner leaves, but the partnership still remains (change of owners). This results in a new accounting entity
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| What are the first accounting steps are taken in a partnership dissolution? | 1partnership adjust accounts so properly stated
2allocate income (loss) to existing partners' capital accounts 3adjust assets to fair market value and liabilities to present values. Determine type of transaction-partnership and partner or between partner
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| In a transaction between a partner and the partnership, what happens when a new partner is added? | New partner invests assets and receives a capital balance;
Equal-Debit assets contributed credit new capital account for FV
Greater/Less- use bonus method or goodwill method
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| When a new partner is added and the capital given is greater or less then the investment made, what happens under the bonus method? | Old partnership capital + New investment= New partnership capital amount
New partner is allocated his determined purchase share and old partners capital accounts adjusted as if paid or were paid a bonus for difference of investment and share received
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| When a new partner is added and the capital given is greater or less then the investment made, what happens under the goodwill method? | old partnership capital + New investment No= New partnership capital amount
Goodwill recorded on partnership books for diff total identifiable assets (minus goodwill) and deemed value of entity (includes goodwill) New invest more Gwill to old or opposite
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| What methods are used on the death or withdrawal of a partner? | Goodwill or bonus method. Remove amount withdrawn partner expects to receive, allocate remaining difference amongst other partners with cash (bonus) or goodwill (goodwill)
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| What are the two methods to deal with a transaction between partners? | 1. transfer portion of existing partners capital to the new capital account of the new investor
2. record implied goodwill. Find implied value (amount paid/% acquired). Subtract implied value by BV= Goodwill. Allocate to prior partners based on P&L ratio
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| What are the 4 basic steps in a partnership liquidation? | 1operating income (loss) allocated to partners capital accounts based P&L ratio
2Convert noncash assets to cash gain/loss allocate partners capital accounts P&L
3Pay creditors with cash reserve
4Remaining cash to partners on proportion of capital accou
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| In partnership liquidation, what happens when a loan exists between the partnership and the partner? A deficit exists in a partners capital account? | 1. subtract loan from partners capital account (right of offset)
2. allocate deficit to remaining partners based on P&L ratio. If partner with deficit is personally solvent he has liability to other partners for amount of deficit
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| *What is the statement of partnership liquidation? | shows in detail all transactions associated with partnership liquidation
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| What is a simple liquidation? installment liquidation? | 1. all assets sold in bulk and creditors claims satisfied. then 1 liquidating distribution made to partners
2. assets sold over time, cash distributed to partners as available
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| What are the two keys to preparing a statement of partnership liquidation under the installment method? | 1. determination of available cash in any point in time
2. determination of which partner is to receive the payment of cash
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| How is the available cash balance determined under the installment method? | Straight forward. Beginning cash+receivable receipts+sale of noncash assets-creditor payments-liquidation expenses incurred
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| How is the determination of which partner is to receive payment of cash done under the safe payment method in the installment method? | Assume-all partners personally insolvent, remaining noncash assets are worthless
Use installment cash distribution schedule
Determine loss needed to clear each partners acct (who gets cash first). Capital balance must subtract(add) loans to(from) partne
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| What accounting is done when the incorporation of a partnership takes place? | new accounting entity is formed
1. close books recognize any income or loss
2. adjust book to reflect fair market value of assets and present value of liabilities
3.adjust capital accounts with P&L ratios, common stock distributed by capital acct amoun
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| In the incorporation of a partnership, what happens when common stock is distributed and new books are established? The partnership books are retained? | 1. assets and liabilities are closed and diff of net value and corporate stock value debited as asset to capital stock from corp. then credit and debit partners capital
2. close partners capital credit common stock and additional paid in capital
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| What is the objective of a foreign currency translation? | provide info relative to expected effects of rate of change on entities cash flows and equity
provide info in consolidated statements relative to financial results of foreign consolidated entity in reporting entities currency
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| What does foreign currency translation apply to? | foreign currency transactions denominated in other companies currency
foreign currency financial statements incorporated in financial statements of US company
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| What are the rules for applying the current rate method? | assets/liabilities translated using current rate at BS date
revenues/expenses translated at rate items recognized during period (year long use weighted average)
owners equity use historical exchange rate
divided historic rate at declaration
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| Under the current rate method, what happens to a translation adjustment? | reported as other comprehensive income. Parent companies share reported in accumulated other comprehensive income
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| What happens if the foreign entity is determined to use US dollars as the function currency? | remeasure monetary assets/liabilities at current rate
remeasure nonmonetary assets/liabilities with historical cost balances remeasured using historical rate at date item entered subsidiary
OE account use historic rate
dividends historic at declaration
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| What happens if the foreign entity is determined to use US dollars as the function currency? continued. | RE brought forward from translated statement last year
Revenues/expenses use weighted avg exchange rate
revenues/expenses that are historical balance allocations use historical rate
remeasurement loss report on consolidated income statement
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| What if the foreign currency has a cumulative inflation rate greater or equal to 100%? | assume US dollar is functional currency
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| Under IFRS what can currencies be defined as? | functional, currency of primary economic environment
foreign, currency other than functional
presentation, currency financial statements presented in
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