Financial Reporting & Analysis Flashcards

Which of the following best describes the purpose of segment reporting under ASC 280?

Answer: To disclose financial information about distinct operating units of an entity

ASC 280 requires public companies to disclose disaggregated financial information for each reportable operating segment based on how management internally reviews performance.

In a vertical analysis of the income statement, each line item is expressed as a percentage of:

Answer: Net revenues (sales)

Vertical analysis of the income statement uses net revenues as the base (100%) to express each item as a proportional percentage.

What is the primary difference between comprehensive income and net income?

Answer: Comprehensive income includes other comprehensive income items bypassing net income

Other comprehensive income (OCI) items such as unrealized gains on AFS securities and foreign currency translation adjustments are included in comprehensive income but excluded from net income.

A company's days sales outstanding (DSO) increases significantly year-over-year. What is the most likely implication?

Answer: Customers are taking longer to pay, potentially signaling collection risk

Rising DSO indicates accounts receivable are outstanding for more days, which may signal deteriorating credit quality or aggressive revenue recognition.

Under the equity method of accounting, how does an investor record dividends received from an investee?

Answer: As a reduction of the investment account

Under the equity method, dividends received reduce the carrying value of the investment rather than being recognized as income, since income was already recorded based on the investor's share of the investee's earnings.

Which qualitative characteristic of financial information ensures that similar transactions are accounted for in the same way across periods?

Answer: Comparability

Comparability, which includes consistency, ensures that users can identify similarities and differences between periods or entities when similar economic events are reported using consistent methods.

How is goodwill tested for impairment under US GAAP (post-ASU 2017-04)?

Answer: Annually by comparing carrying value to fair value; impairment equals the excess of carrying value over fair value

Under the simplified one-step test (ASU 2017-04), goodwill impairment equals the amount by which a reporting unit's carrying value exceeds its fair value, tested at least annually.