1. what are the objectives of financial reporting?
    • 1. Provide info that's useful to creditors, investors, and lenders
    • 2. Provide info regarding entities economic resources & claims to those resouces.
    • 3. Changes to economic resources & claims to those resources.
    • 4. Provide info of financial performance reflected by accrual accounting
    • 5. Provide info of financial performance from past cash flows
    • 6. Provide info about changes in economic resources & claims, that's not a result of financial performance.
  2. to accomplish the financial reporting objectives we have primary qualitative characteristics what are they?
    • for info to be useful it has to be relevant and be faithfully represented.
    • 1. Relevance-capable of making a diff in users decision making. 
    • a. predictive value- helps decision makers predict/forecast future results.
    • b. confirmatory value- confirm/correct prior predictions
    • *materiality- info material if it makes a diff if omitted.

    • 2. Faithful representation- info depicts what its suppose to be
    • a. error free- no errors
    • b. neutrality- the info free of error or bias
    • c. completeness- info is complete has all parts

    to remember Roger is PC, and he is on the FENC.
  3. what are the secondary qualitative characteristics that apply to both primary characteristics?
    • the secondary qualitative characteristics that apply are the following:
    • 1. Comparability- compare 1 year to the next
    • 2. Understandability- makes info understandable
    • 3. Timeliness- info is available in a timely manner.
    • 3. Verifiability- different sources will get same results.

    to remember CUT-V
  4. what is the overriding constraint to all financial objectives?
    the overriding constraint is the COST/BENEFIT Constraint. The cost can't outweigh the benefit.
  5. what are the 10 financial statement elements?
    • 1. Assets
    • 2. Liabilities
    • 3. Equity = assets - liabilities
    • 4. Investments by owners
    • 5. Distributions by owners
    • 6. Comprehensive income-DENT
    • 7. Gains
    • 8. Losses
    • 9. Expenses
    • 10. Revenues
  6. what are the main sections of the notes section of the F/S?
    • Disclosures under GAAP require these main sections.
    • 1. Summary of accounting policies - disclose policies used such as depreciation methods, etc.
    • 2. Summary of significant assumptions made-these can be useful lives etc.
    • 3. All other relevant info, such as contigent liabilities and contingent gains
  7. IFRS with regards to qualitative characteristics and F/S elements?
    • big difference between GAAP is that IFRS & GAAP is that IFRS is judgement based, while GAAP is rules based. IASB has 4 Qualitative characteristics to make the info useful. 
    • 1. Relevance
    • a. predictive value
    • b. confirmatory value
    • *materiality

    • 2. Reliability
    • a. Neutrality
    • b. Completeness
    • c. Faithful representation
    • d. Substance over form
    • e. Prudence(Conservatism)

    • 3. Understandability
    • 4. Comparability

    • IASB 5 F/S elements
    • 1. Assets
    • 2. Liabilities
    • 3. Equity
    • 4. Income- revs+gains
    • 5. Expenses- expenses+losses
  8. what is a cash equivalent?
    cash equivalent is a security that easily converted into cash with maturity within 90days any security beyond 90days becomes an investment. 
  9. what is a bank reconciliation?
    bank reconciliation is when a company brings the books and bank statements on the same page and make adjustments to bring them the same. Here are examples,

    • Balance on bank statements
    • + deposits in transit
    • - outstanding checks
    • +/- errors by bank
    • =corrected balance

    • Checkbook balance
    • + amounts collected by bank
    • - unrecorded bank charges
    • +/- errors in recording trans
    • = corrected balance
  10. What is the GAAP Income Statement?
    the GAAP Income Statement is a statement that shows the activity of a business over a period of time unlike the balance sheet which is a snapshot of the business. Here is an example

    • GAAP I/S
    • Operating Income
    • Nonoperating Income
    • Taxes(deferred/current)
    • Income from continuing ops
    • Discounting Ops
    • Extraordinary G/L
    • Net Income
    • OCI
    • Comprehensive Income

    • Operating Income Breakdown
    • Sales
    • <COGS>
    • GP
    • SG&A
    • Operating Income

    • Beg. Inv
    • +Net Purchases
    • GA4S
    • <Ending Inv.> 
    • COGS
  11. what is the cost/equity method and where do they arise?
    When a company acquires stock we need to figure out how to account for the acquisition of stock. GAAP allows 3 methods. Here is where cost/equity method show up:

    0-20% Cost Method/Marketable securities(used when traded)- Implication has no influence over the investors of the company. 

    20-50% Equity Method- Implication is that the investor has significant influence

    50+% Consolidation(FAR 8)-Implication has control. 
  12. What is the cost method in depth journal entries, etc?
    when you buy stock/shares and you possess 0-20% then you act as if no influence on the company. Example journal entries

    • Acquisition
    •     CASH X

    • % Of Dividends
    • CASH X

    no other dividends arise because they don't actually own anything
  13. what is the equity method in depth journal entries, etc?
    the equity method is used because the shares owned in another company are between 20-50% and they have significant influence. Example with journal entries:

    • Example
    • Purchase 4000
    • FMV Assets 3000
    • CV Assets 2500

    • Purchases-FMV Assets=1000 Goodwill
    • FMW Assets-CV Assets=500 FMV write-up on assets.

    • Acquisition
    • INVESTMENT 4000
    •     CASH 4000

    • % Of Dividends
    • CASH 30
    •     INVESTMENT 30

    • % Of Earnings

    • A/D/Impairment
    •     INVESTMENT 20

    • *Equity to Cost method- Prospective approach
    • *Cost to Equity method- Retrospective approach
  14. Investments under IFRS?
    Same as GAAP, however, some terminology differences.

    First trading securities are held for trading securities. 
  15. what happens to securities that are in the cost method of investments classifications, etc?
    • this is securities that fall under the cost method. this means they have no significant influence and don't own enough shares to have any are classified as either;
    • 1. Trading Securities-Bought for short term to make a profit(stocks or bonds)

    2. A4S Securities-securities that aren't trading or HTM(Bonds or stocks or warrants or options)

    3. HTM-doesn't have equity securities, have the ability & intent to hold the security to maturity(bonds only, stocks don't mature)
  16. how do we book/record trading securities?
    remember trading securities we are in the 0-20% of ownership and have no significant influence. also they are bought to make a profit in short term. so here is the journal entries;

    • To Purchase
    •    CASH X

    • Adj to FMV

  17. how do we book/record A4S securities?
    remember A4S securities are in the 0-20% of ownership and possess significant influence and are all securities that aren't Trading or HTM. so here goes journal entries;

    • To purchase
    •     CASH X 

    • Adj to FMV
    •     INVESTMENT X

    *A4S securities are kept at FMV
  18. how do we book/record HTM securities?
    remember HTM securities are in the 0-20% of ownership and possess no significant influence and are securities that are held to maturity by someone who has intent and ability to do so. so here goes journal entries;

    • To purchase
    •     CASH X

    *HTM securities are carried at Amortized Cost, which means the Investment account is kept at cost-amortized amounts for impairments etc...
  19. Impairment testing in regards to Marketable securities?
    • Impairment testing on all securities are present every year. 
    • 3. RECORD/BOOK
    • LOSS X
    •     IMPAIRMENT X
  20. what happens when you reclassify securities(trading,a4s,htm)?
    so here is what we do when we reclassify securities;

    • Trading to A4S(Vice Versa)
    • -reclassify@FMV
    • -Diff is realized G/L

    • HTM to A4S(Vice Versa)
    • -reclassify@FMV)
    • -if HTM to A4S gain goes to OCI on I/S
    • -if A4S to HTM gain goes to AOCI on B/S and amortize. 

    • *so A4S goes to OCI
    • *so Trading goes to Nonoperating in I/S
  21. what is does N stand for in DENT?
    the N stands for Net Realizable G/L from A4S securities. 
  22. what is a derivative or derivative instrument?
    Derivative investments are investments that are derived from something else(in most cases that is derived from stocks). To be a derivative it has to have SUN

    • Sold in cash/equivalents
    • Underlying price
    • No net Investment

    • This is items such as;
    • -Options contracts(right but no obligation to buy/sell)
    • -Future contracts(has right & obligation to buy)
    • -Forward contracts(has right & obligation to buy/sell at agreed price)

    *All derivatives valued @ FMV
  23. what is a hedge and what are the 2 types?
    a hedge is a bet against something. Just like you do in vegas. 2 types of hedges are the following:

    1. Fair value hedge-a hedge against an asset you own because you think the value will go down. 

    2. Cash flow hedge- a hedge against an asset you don't own. 
  24. what is a fair value hedge and what are journal entries?
    fair value hedge is a hedge against an asset you own. journal entries example,

    •     CASH X

    • if price goes down
    • LOSS X
    •     INVENTORY X

    • gain on our bet of price down
    •     GAIN-HEDGE X
  25. what is a cash flow hedge and what are the journal entries?
    cash flow hedge is a hedge against an asset you don't actually own. Journal entries are,

    •     PAYABLE-HEDGE X 
  26. what is a bifurication and what are embedded derivatives?
    Bifurication is when you break apart and embedded derivative into seperate parts. 

    Embedded derivative is a financial instrument that has a derivative and is a instrument by itself. Example is Bonds with warrants

    • Now to tear apart the derivatives they have to meet 3 criteria;
    • 1. Meet SUN definition
    • 2. The hybrid instrument not recorded at FV
    • 3. The derivative is associated with host instrument. 
Card Set
Finanacial reporting objectives, F/S elements, cash & cash equivalents, cost/equity method, marketable securities and derivatives.