FAR Ch 7 - FAR - Notes Chapter 7 http:/cpacfa.blogspot.com...

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FAR - Notes Chapter 7 http://cpacfa.blogspot.com Financial Instruments Fair value disclosure required for financial instruments either in the body of the F/S or in the notes Credit risk – possibility of loss from the failure of another party to perform according to the contract terms Concentration of credit risk – overweight in some sector, region or companies with similar characteristics - must disclose all significant concentrations of credit risk in notes to the F/S Market risk (beta) – risk due to changes in economic circumstances Derivative instrument (SFAS 133) – financial instrument that derives its value from another instrument or asset - has one or more underlying assets and has notional amounts (unit of measure) - requires no initial net investment - there is a settlement Forwards are contracted between parties Futures are made through clearinghouses Reporting gains and losses Derivatives that are speculative (don’t hedge anything) are recognized currently in earnings Fair value hedge – derivative designed to hedge against changes in the fair value of an asset or liability - g/l’s on the derivative and the g/l on the hedged item are recognized currently in earnings Cash flow hedge – hedge exposure to expected future cash flows - effective portion of cash flow hedge – reported in other comprehensive income (PUF E ) - ineffective portion of cash flow hedge – reported in current earnings Foreign operation currency hedge – report in other comprehensive income as part of cumulative translation adj. Stockholders Equity Legal capital – amount of capital that must be retained by the corporation for protection of creditors - also known as par or “stated” value of both preferred and common stock Authorized stock – amount of stock hat board has authorized to issue Issued stock – authorized stock that is issued Outstanding stock – issued stock held by shareholders Cumulative preferred stock – dividends not paid accumulate. Get paid dividend in arrears before others Parcitipating preferred stock – receive their dividends first, then share additional dividends with others Convertible preferred stock – may be exchanged for common stock Dividends declared reduce retained earnings R/E Appropriated R/E – some portion of R/E that is legally restricted and not available to pay dividends Quasi-organization – an accounting adjustment to eliminate negative R/E and have a fresh start Transactions with owners (issue/repurchase of stock, paying dividends) are never recorded on the I/S Treasury stock – is not entitled to any of the rights of common shareholders (no voting, no dividends) and is a contra equity account 2 methods of accounting: 1. Cost method 2. Legal or Par value method 1
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This note was uploaded on 05/11/2010 for the course CPA 2010 taught by Professor ?? during the Spring '10 term at Becker College.

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FAR Ch 7 - FAR - Notes Chapter 7 http:/cpacfa.blogspot.com...

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