FINAL REVIEW NOTES

Payroll Taxes
Accrued liability --> FIT withheld + Employer FICA + Employee FICA
Payroll tax expense --> Only employer FICA

Refinancing ST-debt w/common stock issue, after 12/31, before F/S are issued
• Only report portion of debt not refinanced as a CL

P/E ratio = MKT value per share/EPS

EPS = (NI - P/S divs) / (avg common shares outstanding)

Installment Sales method of revenue recognition

• non-GAAP, unless collectible amount cannot be determined

• Cash basis of accounting

Inventory impairment --> Don't charge off as a loss until the end of the year

Bankruptcy Liquidation preference

1. Secured creditors (up to amount of liens)
2. Partially secured creditors (up to amount of assets specifically pledged to them)
3. Priority Claims (using residual cash available)
4. Unsecured, nonpriority claims (partially secured creditors who are owed more than assets
pledged fall into this category)

Preferred Dividends --> Paid after NI is determined, subtract gross amount (not-net of tax) from
NI to arrive at EPS numerator
Cumulative

• If divs in arrears not declared, disclose only

• Once declared by board, accrue all divs in arrears as a liability

Convertible Preferred Stock- @ conversion

P/S xx (par)
APIC- ps xx (if any)
C/S xx (par)
APIC- cs xx [plug]

Stock Rights- Only record JE if exercised

Cash 100
C/S 75 (par)
APIC 25 [plug]

Start-up and Organizational Costs --> Expense both as incurred for financial statement
presentation

Operateing segment reporting -> Must report segment if sales (including IC sales and sales to
outsiders) is >= 10% of total firmwide combined sales
Stock options --> Upon grant, S/E not affected (because deferred comp is contra-S/E to APIC-
stock options outstanding)
Stock donation by a shareholder --> No effect on S/E
Property Dividends --> come out of R/E

Partnerships (formation & liquidation)

Bonus Method

• Takes only net identifiable assets into account

Goodwill method

• Accounts for nonidentifiable contributed assets

Governmental entries
- Particularly the closing entries and the budget entry
Quick review of NFP
Change in accounting principle vs. change in estimate
- inseperable, how to treat this?
Cost/Par methods for accounting for T/S
Par Value Method => reverses the original entry to issue the common stock with any difference
between carrying value and purchase price adjusted through paid-in capital and/or retained
earnings and treats a subsequent reissuance like a new issuance of common stock.

Purchase for more than C/S issue price

T/S 100 (c/s par)

APIC- C/S 50 (c/s apic @ issue)
R/E xx [plug]
Cash 250

if purchased for less than C/S issue price...

T/S 100
apic- cs 50
apic- ts 30
cash 120

Cost Method
T/S xx (cost)
Cash

Cash xx (amount collected)

T/S xx (at cost)
APIC- t/s xx (excess of cash received over cost to acquire t/s)

If reissued below cost to acquire...

Cash 100
APIC- T/S (if balance exists)
R/E (once APIC-T/S is exhausted)
T/S 150 (@ cost)
Stock dividends
Large (>25%)
R/E xx
C/S xx (par)

Small (<25%)
R/E xx
C/S xx (par)
APIC xx

EPS and stock splits

• Retroactive application for avg shares outstanding when calculating EPS for all periods
presented!!!
• Preferred dividends subtracted to arrive at NI available to common shareholders
o Noncumulative => PS Divs DECLARED are subtracted
o Cumulative => PS dividends owed
o Amount paid has no effect on numerator of EPS

SCF notes

• Dividends received = Operating

o Divs paid = financing
•