Accounting Principles Quiz

Course Information

• Course Title: AFA300 - Intermediate Financial Accounting I
• Instructor: Harjot Mehmi
• Email: [email protected]
• Office: YDI 1066 (1 Dundas St W)
• Office Hours: Mondays, 1 – 3 PM
• Course Section: 011
• Start Date: Sept. 9, 2024

Week 1: Sept. 9, 2024

• Introduction to the course
• Instructor's background and experience
• Course prerequisite: AFA 100 - Introductory Financial Accounting
• Course outline: Extensive study of Financial Accounting under International Financial Reporting Standards (IFRS) and Accounting Standards for Private Enterprises (ASPE)
• Topics to include: conceptual framework for financial reporting, financial statements, revenue and expense recognition, and current assets (e.g., cash, receivables, inventory)

Personal Introduction

• Recently joined Toronto Metropolitan University
• BBA, MBA, PhD (expected Dec. 2024)
• Research focus: taxation
• Previous teaching experience: AFA717 (Taxation I) at Wilfrid Laurier University
• Currently in progress: CPA and CFA certifications

Course Objectives

• Understand financial reporting and the conceptual framework
• Integrate problem-solving skills and professional judgment in the application of accounting standards to accounting/economic events (e.g., revenue recognition)
• Understand the differences between IFRS and ASPE
• Apply IFRS and ASPE in the preparation, analysis and evaluation of financial statements and disclosures
• Learn to communicate in business situations

Required Course Text

• With WileyPLUS: Kieso, Weygandt, Warfield, Weicek, McConomy, Intermediate Accounting Volume 1, 13th Canadian Edition, 2021, Wiley Sons.
• The 13th edition is different from the 12th edition; students are strongly advised to purchase the latest 13th edition.
• CPA Canada Handbook - Accounting (Parts I and II), Chartered Professional Accountants of Canada.
• Access the textbook online through TMU Libraries: learn.library.torontomu.ca/accounting/standar

Other Requirements

• Calculator: Texas Instruments BA II Plus Financial Calculator
• Internet access: required for email communication and D2L Brightspace access.
• Course will be managed online on D2L Brightspace.
• Homework assignments will be completed online on WileyPLUS.

Course Grade Breakdown

• WileyPLUS Homework Assignments: 20%
• In-Class Quizzes: 5%
• In-Person Midterm Exam: 25%
• In-Person Case Test: 20%
• In-Person Final Exam: 30%
• Total: 100%

WileyPLUS Homework Assignments

• 5 assignments (each worth 4% of the final grade) .
• 3 attempts per question; best score used
• Same questions, different values for each student
• Assignment solutions are available after the due date.
• Assignments are available for 7 days and are due on Mondays at 11:59 PM.
• No make-ups or due date extensions

WileyPLUS Registration

• Access WileyPLUS at https://login.education.wiley.com/login.
• Sign up for a WileyPLUS account; use TMU email credentials
• Enter course section ID: B29592; Alternatively, you can search the instructor "Harjot Mehmi''
• Click "Find my course".
• Enter the registration code provided by WileyPLUS.

In-Class Quizzes

• 5 in-class "pop" quizzes
• Quizzes will be randomly selected in 5 classes.
• Open-book and collaboration are permitted during quizzes
• Each quiz is worth 1% of the final grade.
• Handwritten answers on scrap paper provided during class.

In-Person Midterm Exam

• Week 7: Monday, Oct. 28
• 3-hour closed book exam.
• Topics covered: Chapters 0 - 4
• Exam location: TRS 2-154 (computer room)
• Includes multiple choice and short/long-answer questions
• Content from lecture/readings/assignments

In-Person Case Test

• Saturday, November 23
• 1.5-hour closed book case test
• Topics covered: Chapters 0, 2, 5, and 6
• Location: TRS 2-154 (computer room)
• Using "The CPA Way" for analysis and recommendations.

In-Person Final Exam

• 3-hour closed book exam
• Cumulative, covering Chapters 0-8
• Date, time, and location: TBD
• Include multiple choice and short/long-answer questions

Academic Consideration Request (ACR)

• Available for extenuating circumstances affecting the ability to complete the midterm, case test, or final exam
• Examples: significant physical and mental health issues, traumatic experiences
• Does not include typical circumstances, like vacations or employment.
• Submit within 3 business days of the missed assessment date

Missed Assessments

• For each missed assessment: email the instructor, submit the ACR, and follow-up email.
• Missed midterm: the weight will transfer to the final exam (55% of the final grade)
• Missed case test: request a make-up test
• Missed final exam: request a make-up exam

TMU Grading System

• Letter grades and corresponding grade points are provided.

Chapter 0: Accounting Cycle Review

• Review of accounting cycle

Financial Accounting Review Questions

• Review questions covered in today's class
• Solutions will be posted; questions not covered are not posted.

Prepaid Expenses

• Paid in cash before benefit reception.
• Shown as assets, debited increase.
• Cash is credited by decrease.
• Expire with time or use.
• Deferrals:*
• Revenue or expense recognition after cash exchange.
• Closing Entries:*
• Temporary account balances are transferred to a permanent shareholders’ equity (retained earnings).
• Companies close revenue and expense accounts to a separate temporary account, Income Summary. 
• Dividends:*
• Declared as a transaction
• Paid as a separate transaction
• Dividends are a temporary shareholders' equity account, closed at the end of the period.

Chapter 1: The Canadian Financial Reporting Environment

• Overview of financial reporting environment in Canada

In-Class Questions

• CA1.2
• Solutions for in-class and textbook questions available on D2L

Characteristics of Accounting

• Measures and communicates financial information about economic entities to interested parties.
• Two classifications:
• Financial Accounting
• Managerial Accounting

Basic Financial Statements

• Statement of Financial Position (balance sheet)
• Statement of Income or Comprehensive Income (income statement)
• Statement of Cash Flows
• Statement of Changes in Equity

What is at Stake for Each Stakeholder?

• Entities in financial reporting environment include investors, creditors, management, securities commissions, stock exchanges, analysts, auditors, standard setters, and tax authorities; these entities have particular interests in financial reporting

Objective of Financial Reporting

• Provide information about the reporting entity to current and potential decision-makers
• Entity perspective: considers the need for other users besides shareholders

Information Asymmetry

• Managers have more access to information than other stakeholders.
• This is a problem that needs to be resolved
• Types of problems that arise due to this include adverse selection and moral hazard

Management Bias

• Two types: Aggressive accounting (downplay negative and emphasize positive) and Conservative accounting (downplay positive and emphasize negative)
• Possible reasons include: improving company performance
• Meeting analyst expectations

Entities Responsible for GAAP

• Accounting standards help reduce information asymmetry
• Entities involved in setting requirements: AcSB, IASB, FASB

CA1.2 – Ethics Case

• Analyze issue, analyze relevant accounting issues, recommend how to address issues, and complete entries
• Identify issues associated with ethical considerations in accounting.

Chapter 2: Conceptual Framework Underlying Financial Reporting

• Review the conceptual framework for financial reporting
• Answers for in-class questions will be posted on D2L
• Answers for the textbook brief questions are already posted on D2L

Development of the Conceptual Framework

• The new framework was issued by IASB in Jan 2020.
• It is effective to communicate information for investors, creditors, and other users.

Fundamental Characteristics of Useful Information

• Faithful representation
• Complete
• Neutral
• Free from error
• Relevant
• Predictive Value
• Has Feedback/Confirmatory Value
• Material

Materiality

• An item is material if its inclusion/omission would influence the decisions of a decision-maker
• Quantitative materiality
• Qualitative materiality
• Examples of factors influencing quantitative and qualitative materiality

E2.4 – А, В, & C

• Examples and analyses of exercises from chapter two

E2.4 – D

• Examples and analyses of exercises related to ethical considerations

Enhancing Characteristics of Useful Information

• These improve the usefulness of information:
  • Comparability
  • Verifiability
  • Timeliness
  • Understandability

Elements of Financial Statements

• Assets
• Liabilities
• Equity
• Revenues/Income
• Expenses
• Gains & Losses

1. Assets

• Has three essential characteristics:
  • Represents a present economic resource
  • Entity has control over the resource
  • The resource results from a past transaction or event

2. Liabilities

• Has three essential characteristics:
  • Represents a present obligation
  • The obligation requires the entity to transfer an economic resource
  • The obligation results from a past transaction or event

3. Equity

• Residual interest in an entity after deducting liabilities from assets.
• Represents the ownership interest in a business.

4. Revenues/Income & 5. Expenses

• Increases in economic resources as a result of ordinary operations
• Decreases in economic resources as a result of the company's operating activities

6. Gains & Losses

• Increases in equity from peripheral transactions except revenues/expenses and owner's activity
• Decreases in equity from peripheral transactions except revenues/expenses and owner's activity

Financial Statements

• Provides a detailed view of the ASPE and IFRS
• Provides a comparison of statements
• Comprehensive and brief coverage with clarity

Foundational Principles

• Recognition/Derecognition Measurement
• Presentation/Disclosure
• Economic Entity Assumption
• Control
• Revenue Recognition and Realization Principles
• Matching Principle.
• Periodicity Assumption
• Monetary Unit Assumption
• Going Concern Assumption
• Historical Cost Principle
• Fair Value
• Full Disclosure

E3.1, E3.4, E3.6, E3.7, P3.1

• In-class and textbook questions for review

Data, Digitization, and Digitalization

• Digitalization has led to a large amount of data availability (big data) in accounting.
• Digitization converts data into machine-readable format.
• Digitalization transforms processes using new technologies and digital information.
• Big data analysis
• Data analysis versus data analytics.
• Types of data analytics:
• Descriptive
• Diagnostic
• Predictive
• Prescriptive

Measuring Financial Statement Elements

• Methods for calculating fair value
• Measurement categories: cost-based, hybrid, and current value.
• Valuation techniques

2 Approaches to Discounted Cash Flows

• General discounted cash flow approach
• Expected cash flow approach

Present Value Concepts

• Time value
• Interest rates
• Value of money

PV of a Single Future Amount

• Calculations: Using formulas, tables, and financial calculators
• Calculations: Using Formulas, Tables, and Financial Calculators

PV of a Series of Future Cash Flows (Annuities)

• Calculations using formulas, tables, and financial calculators

E3.1 - A, B, & C

• Analyses of problems associated with estimated future cash flows.

P3.1 - A, B, C, & D

• Analyses of problems associated with lease obligations, including time value of money, forgiveness issues

Chapter 3: Data, Decisions, & Measurement

• Data analytics approach in accounting
• Analysis versus analytics
• Discussing different types of analytics

Chapter 4: Reporting Financial Performance

• In-class quiz #1
• Classifications of accounting items
• What is the purpose of the statement of financial performance?

Chapter 5: Financial Position & Cash Flows

• In-class quiz #2

Statement of Financial Position (SFP)

• Balance Sheet; classification order
• Assets: Current assets, long-term investments, property, plant and equipment, intangible assets, other assets
• Liabilities and Equity: Current Liabilities, Long-term Debt, capital shares, contributed surplus, retained earnings, accumulated OCI
• Current assets, short-term investments, accounts receivable, inventory, and prepaid expenses
• Current liabilities include payables, unearned revenue, short-term financing, accrued expenses.

Current Assets - Cash &

Cash Equivalents:

• Short-term, highly liquid securities
• Convertibility into cash
• Significant changes in value are unlikely

Current Assets - Accounts Receivable

• Claims on customers
• Accounts Receivable (A/R): amounts owed in 30-60 days.
• Notes Receivable; written promises that a company will receive money
• Uncollectible amounts: (AFDA) are included in the Balance sheet.

Current Assets - Inventories

• Inventory in ordinary course of business
• Different types of measurement methods such as FIFO, Weighted average, etc.

Current Assets - Prepaid Expenses

• Expenses paid in advance
• Benefits and services are received within 12 months, or the operating cycle.

Long-Term Investments

• Securities: bonds, long-term notes, loans payable.
• Valuation measures

Property, Plant, and Equipment (PPE)

• Tangible assets
• Depreciable and depletable assets

Intangible Assets & Goodwill

• Goodwill: asset representing future benefits from a business combination.
• Intangible assets are amortized, not goodwill.

Other assets

• Non-current receivables, assets in special funds.

Current Liabilities & Long-Term Liabilities

Classifications and types

Shareholders' Equity

• Consists of capital shares, contributed surplus, retained earnings, and accumulated OCI (IFRS only)

Other Required Disclosures

• Contingencies
• Accounting policies; includes significant accounting methods and estimates.

Statement of Cash Flows

• Cash flow from operating activities
• Cash flow from investing activities
• Cash flow from financing activities

Current Cash Debt Coverage Ratio

• Indicates repayment ability

Cash Debt Coverage Ratio

• Indicates a company's ability to repay its total debts from operations

Free Cash Flow

• Cash from operations less capital expenditures less dividends
• Provides insights into the company's ability to invest

P5.7 - A & B

• Statement of Financial Position and statement of cash flows.

P5.7 - C

• Liquidity analysis using ratios.
• Analysis with various financial conditions like current ratio, acid test ratio, cash debt coverage ratio, and free cash flow.

P5.12

• Statement of Cash Flows (Direct Method).

Chapter 6: Revenue Recognition

• In-class quiz #3
• Revenue recognition; calculating different aspects like net revenue

Revenue Recognition: An Overview

• Asset-liability approach
• Earnings approach

Revenue Recognition: 5-Step Process

• Identifying the contract; identifying performance obligations, determining transaction price, allocating price to each obligation, recognizing revenue.

1. Identify the contract with the Customer

• Criteria; legal binding agreements
• Excluding implied contracts.

2. Identify the performance obligations

• Distinct
• Combined obligations
• Implicit and explicit

3. Determine Transaction Price

• Variable consideration
• Time value of money
• Non-cash consideration
• Consideration payable to consumers

i. Variable Consideration- Right of Return

• Analyzing the possibility of product returns.

i. Variable Consideration - Volume Discounts

• Adjusting revenue based on volume discounts.

ii. Time Value of Money

• Adjusting revenue for the time value of money; implied interest rates.

iii. Non-Cash Consideration

• Revenue recognition for non-cash items.

iv. Consideration Paid or Payable

• Recognizing revenue for consideration already paid.

P5.7 - F

• Different ways to interpret financial statement information

Chapter 7: Cash & Receivables

• In-class questions

A/R Write-Off Method

• For handling uncollectible accounts receivable; write-offs, and adjustments

A/R Aging Schedule (Percentage-of-

Receivables Approach)

• Estimating uncollectible receivables using historical data.

Allowance Method; Balance Sheet Presentation & Journal Entries

• Preparation of balance sheets under allowance method
• Recording journal entries with and without credit balances

Percentage-of-Sales Approach; Example & Journal Entries

• Calculating loss on impairment using a % of sales, and recognizing in journal entries

A/R Write-Off; Collection; Direct Write-off Method

• Other methods of handling accounts receivable; direct write-off.

Notes and Loans Receivable; Interest Bearing Short-Term Notes Receivable; Non-Interest Bearing Short-Term Notes Receivable

• Differences in note receivable accounting

Long-Term Notes and Loans Receivable; Interest Bearing Note Issued at Face Value.

• Valuation and amortization of promissory notes.
• How interest rates affect the note valuation

Zero-Interest Bearing Notes

• Recognition and calculation of present value.
• Implicit interest rate determination method.

Note Amortization

• Calculating Note amortization under two possible methods.

Note Issued at Discount - Effective & Straight-Line; Note Issued at Premium

• Accounting for notes issued at a discount and premium.

Derecognition of Receivables

• Methods of derecognizing receivables: secured borrowing and factoring

Secured Borrowing

• Cash generation via secured borrowing
• Interest expense recording on borrowing amount
• Additional financing costs
• Reporting of secured borrowing in financial statements

Factoring Receivables

• Methods of accounting for factoring receivables; with and without recourse

E7.17 – B, C, & D

• Analysis of factoring and its affect on ratios like accounts receivable turnover

P7.3 – A

• Information and calculations of accounts receivable.
• Preparation to generate the ending balance.

P7.3 – B, C, & D

• Estimating uncollectible accounts
• Making adjustments to balance sheet presentations.
• Analyzing loss on impairment

P7.5

• Various calculation and journal entries on Allowance for Doubtful Accounts (AFDA)

P7.8 – A

• Present value of notes receivable using Excel’s PV function.

P7.8 – B Notes Receivable Schedule; Journal Entries

• Detailed calculations showing interest and principal payments.

P7.8 – C

• Comparing Instalment notes, and non-interest-bearing notes.

In-Class Quiz #6 - Chapter 7

• In-class and textbook questions

Chapter 8: Inventory

• In-class questions; inventory accounting systems; perpetual & periodic systems; cost formulas like FIFO, Weighted average, and specific identification

Accounting Definition of Inventory & Measurement of Inventory; Costs Included & Excluded

• Identifying inventory and its features
• Differences between included and excluded costs relevant to inventory accounting
• Inventory accounting systems
  • Perpetual system
    • Features
  • Periodic system
    • Features

Comparing the 3 Cost Formulas

• Examples, and calculation of inventory
• Comparing the three methods of inventory valuation.

Specific Identification; Weighted Average Cost;FIFO

• Detailed calculation of COGS; ending inventory, and valuation methods.

Inventory Measurement

• Accounting principles: Using FIFO, Weighted average cost, and specific identification
• Applying LC & NRV to individual items
• Applying LC & NRV to grouped items

Gross Profit Method & Gross Profit Percentage vs Markup on Cost

• Estimating inventory amounts using gross profit method.
• Analyzing factors affecting calculation

Evaluation of the Gross Profit Method

• Disadvantages/weakness of using the gross profit method.

E8.4, E8.8, E8.11, E8.14, E8.15, E8.20, E8.22

• Various exercises; related to inventory, including physical count, COGS.

E8.22

• Exercises to test understanding of inventory accounting

Test your knowledge on key accounting principles, including earnings management, comprehensive income, and financial reporting standards under ASPE and IFRS. This quiz covers essential concepts that every accounting student should know.