Financial Reporting Cheat Sheet

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Questions and Answers

What does liquidity measure in a company's finances?

The ability to meet short-term obligations (correct)

The long-term profitability of assets

The overall market value of the company

The relationship between total liabilities and equity

Which statement is true regarding the calculation of basic earnings per share (EPS)?

Basic EPS is calculated by dividing net income by total liabilities

Basic EPS includes preferred dividends in the numerator

Basic EPS is calculated using the net income available to common shareholders (correct)

Basic EPS accounts for all common shares issued only

Under the indirect method for foreign transactions, which exchange rate is used?

The average market price of the asset

The historical price of the currency

The domestic price of another currency

The foreign price of the domestic currency (correct)

What component is NOT considered when calculating diluted earnings per share (EPS)?

Preferred stock dividends Signup and view all the answers

What happens to liabilities denominated in foreign currency when the foreign currency appreciates?

They lead to a loss for the company Signup and view all the answers

Which of the following is a criterion for classifying preferred stock as cumulative?

Unpaid dividends accumulate as dividends in arrears Signup and view all the answers

What is the filing deadline for a Form 10-K for large accelerated filers?

60 days Signup and view all the answers

In calculating book value per common share, which of the following is used in the numerator?

Common shareholders' equity Signup and view all the answers

What method is used for calculating the additional shares for diluted EPS when considering options?

Treasury stock method Signup and view all the answers

What adjustment is made for convertible bonds in the if converted method for diluted EPS?

Subtract tax from the interest expense Signup and view all the answers

What happens when foreign currency translates to a loss in assets?

Assets decrease in value Signup and view all the answers

Which type of preferred stock participates in excess dividends without limit?

Participating Signup and view all the answers

How is the weighted average number of common shares outstanding determined?

By averaging shares throughout the year Signup and view all the answers

What is required to be disclosed regarding preference upon liquidation if it exceeds par value?

It must be disclosed in footnotes. Signup and view all the answers

Which of the following refers to a situation where stockholders may exchange their preferred shares at a specified price?

Convertible Stock Signup and view all the answers

What accounts for Treasury stock under the cost method?

Recorded and carried at reacquisition cost. Signup and view all the answers

What method is primarily used for recording treasury stock?

Cost Method Signup and view all the answers

What is the implication of a stock subscription default?

Partial payments can be retained and converted to APIC. Signup and view all the answers

When is revenue recognized if a customer has paid nonrefundable consideration and there are no remaining performance obligations?

When the performance obligations are completed. Signup and view all the answers

What must occur for a contract modification to be treated as a new contract?

There is a scope increase. Signup and view all the answers

Which of the following is not part of the five-step approach for revenue recognition?

Determine the competition in the market. Signup and view all the answers

What method must be used when recognizing a change in accounting estimate?

Prospective Approach Signup and view all the answers

How are small stock dividends (<25%) accounted for?

Retained Earnings decrease by the divident's par value. Signup and view all the answers

What is typically used to calculate gains and losses on treasury stock when using the cost method?

Reissue Price - Repurchase Cost Signup and view all the answers

What document specifies the time the names of shareholders entitled to receive dividends are determined?

Date of Record Signup and view all the answers

What triggers recognizing revenue at a point in time?

Customer accepts the asset. Signup and view all the answers

What does fair value represent?

The price that would be received to sell an asset or transfer a liability Signup and view all the answers

Which of the following indicates that a transfer is separately identifiable?

The asset does not integrate with others Signup and view all the answers

What does the 'Market Approach' in fair value measurement involve?

Using prices from recent transactions involving comparable assets Signup and view all the answers

Which liquidity ratio indicates a company's ability to meet short-term obligations?

Current Ratio Signup and view all the answers

What is included in the calculation for 'Days Sales in Accounts Receivable'?

Ending A/R divided by Sales (net) multiplied by 365 Signup and view all the answers

Which level of the fair value hierarchy is based on unobservable inputs?

Level 3 Signup and view all the answers

What must be adjusted if a change in accounting entity occurs?

Prior financial statements presented in comparative F/S Signup and view all the answers

Which profitability ratio measures the success of producing sales relative to net income?

Return on Sales Signup and view all the answers

What is a key aspect of 'Error Correction' in prior period adjustments?

Errors involve oversights of facts and misapplication of GAAP Signup and view all the answers

What is the measure of a company’s ability to convert sales into profit?

Net Profit Margin Signup and view all the answers

In fair value measurement, what does the term 'Principal Market' refer to?

The market with the highest transaction volume Signup and view all the answers

What kind of assets utilizes the 'Highest and Best Use' measurement approach?

Non-Financial Assets Signup and view all the answers

What event requires restoring previous financial statements due to changes?

Retrospective accounting adjustments Signup and view all the answers

What does the 'Debt-to-Equity Ratio' measure?

Total liabilities divided by total equity Signup and view all the answers

Which of the following is a characteristic of 'Not Separately Identifiable POs'?

Highly interrelated or interdependent assets Signup and view all the answers

What type of fund is primarily used for the construction of major capital assets?

Capital Project Fund Signup and view all the answers

Which type of financial statement shows the balance of net assets with and without donor restrictions?

Statement of Financial Position Signup and view all the answers

In a private purpose trust fund, the assets are legally protected but are not categorized as what?

Pensions Signup and view all the answers

What basis of accounting is used for proprietary funds?

Full Accrual Signup and view all the answers

Which of the following is NOT a typical component reported within the Statement of Activities for NFPs?

Change in outstanding debts Signup and view all the answers

What is the primary purpose of fiduciary funds?

To manage the economic resources on behalf of others Signup and view all the answers

Under which circumstances would unconditional promises (pledges) not be recognized as revenue?

If they are conditional promises Signup and view all the answers

What is the accounting treatment for donated services that do not create an asset?

Recorded if they meet certain criteria Signup and view all the answers

Which of the following statements is true regarding the amounts and nature of a nonprofit organization's net assets?

Net assets include both restricted and unrestricted categories Signup and view all the answers

What task does the Statement of Cash Flows in NFPs primarily perform?

Detail sources and uses of cash Signup and view all the answers

In beneficiary accounting for financial interrelated entities, which entry indicates a financial interest in recipient net assets?

DR: Interest in recipient net assets Signup and view all the answers

Which of the following is a characteristic of government funds?

Focus on stewardship of resources Signup and view all the answers

Which of the following is an example of a conditional contribution?

A donation given with the condition of a matching grant Signup and view all the answers

What is the purpose of the Governmental Accounting Standards Board (GASB)?

To establish accounting/reporting standards for governments Signup and view all the answers

When is revenue recognized under the modified accrual basis for government accounting?

When it is collectible in the current period or within 60 days Signup and view all the answers

Which of the following describes permanent tax differences?

They will not reverse in future periods Signup and view all the answers

What happens to intercompany gains on the sale of land in a partnership?

They need to be undone each year from retained earnings Signup and view all the answers

Which accounting method focuses primarily on public accountability in government entities?

Modified accrual accounting Signup and view all the answers

How should goodwill be allocated in a partnership during liquidation?

Based on the capital account balances Signup and view all the answers

Which of the following is a characteristic of governmental financial statements as per GASB?

Understandability for individuals without accounting knowledge Signup and view all the answers

What is the result of a non-taxable income becoming taxable income in terms of deferred tax items?

Recognition of deferred tax liabilities Signup and view all the answers

What accounting records are typically recognized when a governmental fund incurs an expenditure?

When liabilities are incurred Signup and view all the answers

Which of the following is included in the GASB hierarchy of accounting standards?

GASB Bulletins and guides Signup and view all the answers

Which statement is true regarding the treatment of temporary tax differences?

They result in deferred tax assets or liabilities Signup and view all the answers

What is the purpose of a special revenue fund?

To account for revenues from specific taxes or earmarks Signup and view all the answers

In the context of accounting for partnerships, how is a bonus typically allocated?

Among the remaining partners based on their capital accounts Signup and view all the answers

How should expenditures for long-term assets be treated in governmental financial statements?

Capitalized and depreciated over the life of the asset Signup and view all the answers

What does a higher inventory turnover indicate?

Better sales efficiency Signup and view all the answers

What is the effect of using the LIFO inventory method in an environment of rising prices?

Creates lower tax liabilities Signup and view all the answers

Which financial ratio measures the proportion of total debt to total assets?

Total Debt Ratio Signup and view all the answers

What is the primary goal of cash conversion cycle analysis?

To determine operational efficiency Signup and view all the answers

How is the Price to Earnings (P/E) ratio calculated?

Market Price per Share / Earnings per Share Signup and view all the answers

Which method is most suitable for tracking inventory for unique, high-value items?

Specific Identification Signup and view all the answers

What should be the basis for revenue recognition in cash basis financial statements?

When cash is received Signup and view all the answers

Which of the following is NOT a feature of a modified cash basis of accounting?

Recognition of all liabilities and equity Signup and view all the answers

What is a primary characteristic of a perpetual inventory system?

Records inventory changes directly after each sale Signup and view all the answers

Which type of event is recognized in financial statements as Type 1?

Condition that existed at B/S date Signup and view all the answers

What does the term 'Days in Payable' refer to?

Average time a company takes to pay its suppliers Signup and view all the answers

What financial metric can be calculated as Sales (net) / 365?

Revenue per day Signup and view all the answers

What method primarily uses the lower of cost or net realizable value for inventory valuation?

Lower of Cost and Net Realizable Value Signup and view all the answers

What does the term 'Cash Equivalents' refer to?

Short-term, highly liquid investments Signup and view all the answers

Study Notes

Financial Reporting (FAR) Cheat Sheet

Full Set of Financial Statements: Includes Statement of Financial Position (Balance Sheet), Statement of Earnings (Income Statement), Statement of Comprehensive Income, Statement of Cash Flows, and Statement of Owner's Equity.
Individual Foreign Transactions: Liquidity and solvency are impacted. Basic Earnings Per Share (EPS) calculations are important.
Liquidity and Solvency: Liquidity measures the ability to meet short-term obligations; Solvency measures the ability to meet long-term obligations. Current Assets and Current Liabilities are crucial factors.
Basic Earnings Per Share (EPS): Calculated using Income Available to Common Shareholders and Weighted Average Number of Common Shares Outstanding.
Comprehensive Income: Includes items such as income available to common shareholders, preferred dividends, and other comprehensive income.
Form 10-K and 10-Q Filing Deadlines: Vary based on company size and revenue.
Stock Issuance: Different journal entries depend on whether stock is issued above, at, or below par value.

Revenue Recognition

Five-Step Approach (I am a STAR): 1) Identify the contract with the customer; 2) Separate Performance Obligations; 3) Determine the Transaction Price; 4) Allocate the Price to each PO; 5) Recognize Revenue.
Revenue Recognition Timing: Satisfied Over Time or Satisfied at a Point in Time. Criteria for each.
Fair Value: The price received to sell an asset or transfer a liability. Non-financial assets are measured using highest and best use.
Criteria for Identifying Contracts: Parties involved must approve the contract, with defined payment terms, probable collection of consideration.
Contract Modification: Treated as a new contract if scope or price changes significantly.

Assets

Accounts Receivable: Beginning balance, credit sales, cash collected, write-offs. Conversion to a note. Sales Discounts are part of transactions.
Cash Equivalents: Short-term, highly liquid investments. Criteria such as ready convertibility to cash and short maturity.
Inventory: FIFO (First-In, First-Out), Weighted Average, LIFO (Last-In, First-Out), Specific Identification. Inventory valuation considers Lower of Cost or Net Realizable Value (NRV).
Inventory Valuation Methods: Specific identification, FIFO, weighted average, moving average, and LIFO (with dollar-value LIFO). Differences in how these impact COGS and ending inventory.
Factoring and Discounting: Sales of accounts receivables or notes receivable, with or without recourse. Key elements of recognizing when a transaction constitutes a true sale.
Impairment of Assets : Testing for recoverability; calculation of impairment loss.

Liabilities

Employee-Related Liabilities: Payroll taxes and deductions, accrued vacation. Exit or disposal activities impact employee liabilities.
Lease Criteria: OWNES Criteria to identify a finance lease. Operating leases recognize only lease expense. Finance leases consider assets and liability.
Trade Accounts Payable: Gross and Net methods.
Trade Notes Payable: Interest-bearing notes, bonds, and debentures.
Gain Contingencies: Not recognized until they are probable; Loss Contingencies are measured differently.
Annuity: Annuity Due or Ordinary Annuity

Investments, Cash Flows, and Taxes

Consolidation: Combining financial statements of different entities, particularly subsidiaries.
Statement of Cash Flows: Operating, Investing, and Financing activities. Indirect Method for Operating Cash Flow calculations.
Temporary and Permanent Tax Differences: Tax differences are classified.
Partnership Admission: Exact, Bonus, and Goodwill methods to value partners' contributions.
Partnership Withdrawal: Bonus or Goodwill methods are used to allocate the withdrawal amount.
Partnership Liquidation: Steps for winding down partnership affairs.

Government and Not-for-Profit (NFP)

Governmental Accounting: Governmental funds, proprietary funds, fiduciary funds. Fund accounting distinctions (e.g., Modified Accrual vs. Full Accrual).
NFP Accounting: Statement of financial position, statement of activities, and statement of cash flows.
Contributions to NFPs, treatment of conditional and unconditional contributions;
Cash/Collection Contingencies and Receipts/Collections/Donations.
NFP Revenue Recognition: Recognizing cash contributions as revenue. Recognizing multi-year pledges; Conditional and Unconditional promises.

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Description

This quiz covers essential concepts in financial reporting, including the full set of financial statements, liquidity and solvency measures, and Basic Earnings Per Share (EPS) calculations. It is designed to aid learners in understanding the fundamentals and key components required for effective financial analysis.