Financial Accounting & Reporting Flashcards

What is the primary purpose of the statement of stockholders' equity?

Answer: To reconcile beginning and ending balances in all equity accounts

The statement of stockholders' equity explains the changes in paid-in capital, retained earnings, treasury stock, and other equity components between periods.

A company grants employees 10,000 stock options with a fair value of $5 per option on the grant date, vesting over 4 years. What is the annual compensation expense?

Answer: $12,500

Total compensation cost is 10,000 × $5 = $50,000, recognized evenly over the 4-year vesting period: $50,000 ÷ 4 = $12,500 per year.

Which of the following would cause the quick ratio to differ from the current ratio?

Answer: Inventory balance

The quick ratio excludes inventory (and prepaid expenses) from current assets, so a significant inventory balance creates a difference between the two ratios.

Under US GAAP, research and development costs are generally:

Answer: Expensed as incurred

ASC 730 requires that R&D costs be expensed as incurred because future economic benefits are too uncertain to justify capitalization.

A bond with a face value of $100,000 is sold at 97. What is the initial carrying value recorded by the issuer?

Answer: $97,000

Selling at 97 means 97% of face value: $100,000 × 0.97 = $97,000, which is recorded as the net proceeds and initial carrying value of the bond.

Which earnings per share figure is required to be disclosed on the face of the income statement for a public company?

Answer: Both basic and diluted EPS

ASC 260 requires public companies to present both basic EPS and diluted EPS on the face of the income statement for each period presented.

What is the matching principle in financial accounting?

Answer: Revenues and their related expenses should be recognized in the same period

The matching principle requires that expenses be recorded in the same period as the revenues they helped generate, forming the foundation of accrual accounting.