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Training the Street Accounting- Final Exam 2023
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Training the Street Accounting- Final Exam 2023 two objectives of financial reporting - ANSWER relevant and r eliable historical cost - ANSWER firm records the amount of the transact ion fair value - ANSWER whatt the transaction is worth as of the balance sheet date, also known as "mark to market" Fair Value Hierarchy - ANSWER The fair value hierarchy pr ovides insight into the priority of valuation techniques that are used to determine fair value. The f air value hierarchy is divided into three broad levels. Fair Value Hierarchy Level 1: quoted prices in active markets like common stock on NYSE Level 2: Inputs other than quoted prices included in Level 1 tha t are observable for the asset or liability either directly or through corroboration with o bservable data. Level 3: Unobservable inputs (for example, a company's own data or assump tions). this is the most iffy. (ex: a DCF) Level 1 is the most reliable because it is based on quoted prices, li ke a closing stock price in the Wall Street Journal. Level 2 is the next most reliable and would rely on evaluating similar assets or liabilities in active markets. At the least-reliable l evel, Level 3, much judgment is needed based on the best information available to arrive at a r elevant and reliable fair value measurement. FV Level 3 observality - ANSWER if an observable input has >10% impact on fair value, then it must be level 3 substantial doubt - ANSWER 75% doubt a firm wont meet obli gations revenue - ANSWER sales-returns (products and services have bee n delivered) "top line" accounts recievable - ANSWER claim to case retained earnings - ANSWER captures revenue do dividends change the income statement - ANSWER no another name for income statment - ANSWER profit and loss net income= - ANSWER revs-expenses +/- other income (including gains and losses) pg 22 - ANSWER make sure to double check this somehow (brad?) accrual accounting - ANSWER economic measurement is not equa l to cash flow (in other words we dont record when cash is physically moving, just the effects i n accrual) Matching Principle/ accrual accounting (revenues) - ANSWER entiti es match the revenues with the period when it is earned ; example, gift cards. whe n you buy a gift card, the accounts receivable increases, and its matched with deferred revenue (lia bility!) on the balance sheet until it is earned redo pg 28 - ANSWER matching with tif giftcard on cc using accrual accounting matching principle/ accrual accounting (expenses) - ANSWER enti ties match the expense with the revenue; its not an expense until its sold. example is inventory on the bal sheet until revenue is earned (like when the person uses the gift card) balance sheet - ANSWER a firms assets and source of capital (liabiliti es and equity) at a single point in time what are the three primary ways to fund assets - ANSWER othe r liabilities (accounts payable accrued expenses and deffered revenue); debt (interest bearing liabilities) and equity (residual owners, high risk high reward) what are some omissions (items not on the balance sheet) - ANSWER intangi ble assets like Brand; purchase commitments, like coke's commitment to buy sugar, off balance sheet commitments and contingencies example identifying inventory: if you sell a restaurant is that i nventory for the restaruant? - ANSWER no that would be ppe, the business sells food so that w ould be the inventory assets - ANSWER probably economic benefits obtained or controlled by an entity as a result of past transactions or events ; US lists them in order of liquidity and IFRS has a specific order ; 5 general categories are current assets, long term investment s, ppe, intangables, other cash conversion cycle - ANSWER average time to pay for inventory, sell inventory and/or services, and collect cash (cash->inventory->a/p->sale-> cash) when u add i n A/r after sale and before cash it makes the cycle longer prepaid revenue share - ANSWER this is like when google pa ys apple to be the default search engine on safari, in bankruptcy its pretty worthless does "cash" include overdrafts - ANSWER no ; overdrafts are usuall y liabilities does historical cost = fair value - ANSWER yes; but he said not to lose sleep over this contractual offsets - ANSWER when a co has an agreement to p ull from another account in case of an overdraft is restricted cash inclueded in "cash" - ANSWER no ; its set aside for a specific purpose ancd can be a current or a noncurrent asset equity investments (assets) ; what are they, how much control ; how are they valued ; where do gains and losses go - ANSWER equity of another firm (public an d private); assumes <20% of influence over the investee ; Fair value through net income ; all gains and losses go in p&l in income statement, typically in other net below operating income FVTNI = market method - ANSWER Fair value through net income debt investments (assets) - ANSWER debt of another firm or entity ; firm chooses 1 of three accounting methods based on investers ability and intent to hold the investment (trading= fair value w normal expenses; AFS uses fair value and A OCI; htm uses amortized cost and is n/a) where are interest and dividends recieved recorded for both debt and equity investments (assets) - ANSWER p&l what is required to determine the proper classification of debt securities - ANSWER judgement pg 43 equity investments as assets - ANSWER journal entries practice! bond journal entires pg 41 - ANSWER True or False: Under US GAAP, the market method (or FVTNI) applies to investme nts of 20% or less in the stock of both public and private firms. - ANSWER true True or False: The accounting for investments of 20% or less in the stock of public and private firms is the same under US GAAP and IFRS. - ANSWER false: Correct ! The accounting for investments of 20% or less in the stock of public and private fir ms is NOT the same under US GAAP and IFRS. Be sure to read a firm's disclosures of its accounting for investments when comparing the income statements of US vs. international firms. which of the 3 have impacts on earnings when there is an increase or decrease in the value of the bond ; trading , AFS, HTM? - ANSWER trading , afs and htm d o not REDO pg 42 + 43 - ANSWER debt and equity journal entries redo accounts recievable - ANSWER money owed by customers on accountThe benefits of buying summaries with Stuvia:
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