ACCT 370 Study Guide
- Changes in accounting estimates principles- prior year is never adjusted
(accounted for in the period of change and/or in future periods, prospective
approach)
oChange in estimates for long-lived assets
oChange between inventory methods (like LIFO to FIFO)
oTreatment of material errors- corrected through a prior-period adjustment
- Long-lived assets
oDefinition: operating assets expected to yield their economic benefits (or
service potential)over a period linger than one year
oWhat should be expensed vs. capitalized
Capitalized costs- all costs necessary to acquire the asset and make it
ready for use and costs to upgrade a long-lived asset if: the useful life
of the asset is extended, the capacity of the asset is increased, the
efficiency of the asset is increased, there is any other type of increase
in the economic benefits of the asset that results as a consequence of
the expenditure
Is restricted to interest arising from actual borrowings from
outsiders
Depreciation is expensed for long lived assets
oClassification of leases between operating/finance
Basic accounting for leases
Lease- contract in which the owner of an asset (the lessor)
conveys the right to use that asset to another party (the lessee)
Lease payment- installment fee paid by the lessee to the lessor
The right-of-use-asset is retained by the lessor at the expected
fair value at the end of the contract (residual value)
Short-term leases: lease of a year or less
Operating lease: does not transfer ownership of the asset after the
contract between the lessor and lessee
Financing lease: transfers ownership at the end of the term
- Intangibles
oTreatment of software development costs- all software development costs
must be expensed until the software reaches “technological feasibility”
(working model)
oOnce technological feasibility is achieved, software development costs are
capitalized and the cash flows are shows as investing outflows
- Income taxes
oDeferred tax assets:
oTemporary differences (create Deferred Tax assets and liabilities)- a revenue
or expense item that initially causes book income to be more (less) than
taxable income is called an originating temporary difference, but in a
later period or periods, book income is less (more) than taxable income,
resulting in reversing temporary differences
oPermanent differences- does not reverse
- Equity
oTreasury stock (how reported)- in the shareholders equity section of the
balance sheet
oHow compensation is recognized for stock options
A stock option allows an employee to purchase equity shares in the
company for a predetermined price (exercise price)
- Inventory
oFlow of inventory
oGoods available for sale
- Investments
oCategories (trading, available for sale, held to maturity)
oWhen consolidation is required
oWhat is consolidation?
oWhat is goodwill?
oMinority interest
- Revenue recognition model
- Foreign operations
oFunctional currency
- Debt/loans
oLoan covenants
oTypes of bonds
oTypes of default
- Retirement plans
oDefined benefit vs. defined contribution
- Requirements for segment reporting
- Accounting for uncollectible accounts
- Financial statement analysis
oTrend statements
oTime-series analysis
oBenchmarking
oCommon-size
- Key ratios & ratio categories
oLiquidity, solvency, etc…
oReturn on assets
oTotal asset turnover
oA/R turnover
oInventory turnover
oEarnings per share
- Key terms
oPermanent/sustainable earnings
oTemporary/transitory earnings
oGAAP/FASB ASC
oAssets
oDue diligence
oLiabilities
oWorking capital
oDepreciation/amortization
oSubsequent events
oLoss contingencies
oFactoring receivables
oCompetitive advantage
oAccumulated other comprehensive income & comprehensive income
- Key financial statements and what is on them
oBalance sheet
oIncome statement
Single vs. Multi-step
Presentation of OCI
Earnings per share
oCash flows
Indirect vs. direct (which is most popular?)
Operating, investing, financing
oRole of SEC vs. FASB
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