CMA Fundamentals TOC - Lecture notes 1.4 PDF

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CMA Fundamentals, Vol. 1

Table of Contents

Table of Contents Introduction to the CMA Fundamentals Book................................................................. 1 Introduction to Economics ............................................................................................... 2 Economics Overview

3

Microeconomics ................................................................................................................ 4 Demand Price Elasticity of Demand Cross Elasticity of Demand (Substitute or Complementary Goods) Income Elasticity of Demand (Normal or Inferior Goods)

4 10 19 19

Utility Theory: The Benefit Derived by the Consumer The Indifference Curve: What the Consumer Wants to Buy Budget Constraints: What the Consumer is Able to Buy Supply

21 23 24 35

Elasticity of Supply

37

Individual Market Equilibrium......................................................................................... 39 Production Costs............................................................................................................. 48 Classification of Costs

48

Explicit Costs versus Implicit Costs Economic Profit versus Accounting Profit Economic Rent Short-Run Versus Long-Run Costs

49 50 53 54

Marginal Costs and Average Costs Production Costs in the Long Run

55 58

Market Structures ............................................................................................................ 62 Perfect Competition Pure Monopoly Monopolistic Competition

62 70 76

Oligopoly Summary of Types of Market Structures

79 83

Resource Planning .......................................................................................................... 86 Decision-making About Production Marginal Resource Cost Cost of Labor

86 90 91

Resource Demand Optimal Combination of Resources

93 95

Governmental Regulation ............................................................................................... 99 Antitrust Regulations Industrial Regulation by Government of Natural Monopolies © 2016 HOCK international, LLC. For personal use only by original purchaser. Resale prohibited.

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CMA Fundamentals, Vol. 1

Macroeconomics ........................................................................................................... 111 Macroeconomics Overview

111

National Income Accounting ........................................................................................ 112 Methods of Calculating the Value of U.S. Output

113

Aggregation of the National Economy ........................................................................ 123 Aggregate Demand Aggregate Supply Aggregate Demand Shocks and Aggregate Supply Shocks

123 126 129

Economic Growth .......................................................................................................... 133 Investment Expenditure in the Economy .................................................................... 136 Business Cycles ............................................................................................................ 137 Stages of a Business Cycle Economic Indicators

137 140

Money and the Economy .............................................................................................. 144 The Money Supply Demand for Money Equilibrium Interest Rate

144 145 146

Banks and Deposit Creation

148

Government and the Economy: Monetary Policy ....................................................... 151 Structure of the Federal Reserve Functions of the Federal Reserve

151 152

Unemployment and the Economy ................................................................................ 160 Types of Unemployment Costs of Unemployment Full Employment and the Natural Rate of Unemployment

160 161 161

Inflation vs. Unemployment and the Phillips Curve

162

Government and the Economy: Fiscal Policy ............................................................. 163 Demand-Side Fiscal Policy Supply-Side Fiscal Policy Government Funding Classifications of Taxes

163 168 169 170

Inflation and the Economy ............................................................................................ 175 Costs of Inflation

179

Redistribution Effects of Inflation Measurements of Inflation Real vs. Nominal Variables Deflation and the Economy

179 180 181 182

Macroeconomic Theories ............................................................................................. 183 Summary of Macroeconomic Theories

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CMA Fundamentals, Vol. 1

Table of Contents

Global Business ............................................................................................................ 188 International Trade ........................................................................................................ 188 Multinational Corporations (MNCs)

188

Trade Barriers Economic Effects of Trade Barriers Arguments to Support Protectionism Measures to Avoid Trade Barriers

190 192 195 197

Government Support of Exports through the Export-Import Bank

197

Comparative Advantage ............................................................................................... 199 Comparative Advantage Determination Terms of Trade – The “Exchange Rate” Absolute Advantage versus Comparative Advantage Advantages and Disadvantages of Free Trade

200 203 205 209

Foreign Currency Markets and Exchange Rates ........................................................ 210 Direct Quotes versus Indirect Quotes

210

Foreign Exchange Markets and Their Operation Foreign Exchange Transaction Risk Use of Foreign Financing to Reduce Borrowing Costs

211 232 242

Foreign Direct Investment ............................................................................................ 245 International Trade Agreements and Organizations .................................................. 250 General Agreement on Tariffs And Trade World Trade Organization (WTO) Regional Trade Agreements

250 250 252

International Economic Organizations ........................................................................ 254 Global Economic Summit: G20, or “Group of Twenty”

254

Basel Committee on Banking Supervision World Economic Forum (WEF)

254 254

International Monetary Institutions .............................................................................. 255 International Monetary Fund The World Bank

255 255

Cross-Border Movements of Capital ........................................................................... 256 International Accounts and Transactions ................................................................... 258 Quantitative Methods .................................................................................................... 266 Decision-Making and Quantitative Methods

266

Probability ...................................................................................................................... 268 Two Requirements of Probability Probabilities of Independent Events and Mutually Exclusive Events Dependent Events and Conditional Probability Three Methods of Assigning Probable Values

268 268 275 277

Discrete and Continuous Random Variables .............................................................. 278 © 2016 HOCK international, LLC. For personal use only by original purchaser. Resale prohibited.

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Table of Contents Discrete Random Variable Probability Distributions Continuous Random Variable Probability Distributions

CMA Fundamentals, Vol. 1 278 280

Risk, Uncertainty, and Expected Value ....................................................................... 281 Summary of Probability and Expected Value ............................................................. 282 Answers to Questions................................................................................................... 283

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CMA Fundamentals, Vol. 2

Table of Contents

Table of Contents Introduction to the CMA Fundamentals Book ................................................................. 1! Financial Accounting ......................................................................................................... 2! Conceptual Framework The Objective of Financial Reporting Elements of Financial Statements Qualitative Characteristics of Useful Accounting Information Recognition, Measurement, and Disclosure Concepts The Financial Statements The Balance Sheet (Statement of Financial Position) The Income Statement The Statement of Cash Flows (SCF) Statement of Comprehensive Income Statement of Changes in Stockholders’ Equity Limitations of Financial Statements

2! 3! 3! 3! 5! 10! 10! 18! 24! 26! 28! 29!

U.S. Accounting Regulations and the FASB.................................................................. 30! History of the Accounting Standard Setting Process 30! The IASB (International Accounting Standards Board) ................................................ 31! Cash and Cash Equivalents ............................................................................................ 33! Cash Cash Equivalents

33! 36!

Accounts Receivable ....................................................................................................... 37! Determining the Receivable Amount and Valuing the Receivable 37! Percentage of Sales Method 42! Percentage of Receivables Method 43! Discounts and Initial Recording of the Account Receivable 45! Trade Discounts 45! Cash Discounts (Sales Discounts) 46! Sales Returns 48! Immaterial Amount of Returns 48! Material Amount of Returns 49! Customer Deposits 49! Receivables as an Immediate Source of Cash 51! Factoring of Accounts Receivable 52! Assigning Accounts Receivable 56! Notes Receivable .............................................................................................................. 57! Valuation of Notes Receivable 58! Valuation of Short-Term Notes Receivable 58! Valuation of Long-Term Notes Receivable 58! Calculation of Interest Revenue 60! © 2017 HOCK international, LLC. For personal use only by original purchaser. Resale prohibited.

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Calculation of Interest Receivable Amortization of the Premium or Discount Calculating the Gain or Loss on Sale of an Asset Represented by a Note Receivable The Fair Value Option Impairment of Long-Term Notes Receivable Discounting of Notes Receivable

61! 61! 63! 66! 67! 67!

Investments in Marketable Securities ............................................................................ 69! Overview of Accounting for Marketable Securities 69! The Fair Value Option 71! Key Issues in Accounting for Marketable Securities 71! Determining the Acquisition Cost 71! Amortizing the Premium or Discount on Debt Securities Held as Investments 71! Subsequent Changes in Market Value of Securities Accounted for at Fair Value 79! Realized Gain or Loss on Sale of Security 84! Transferring Securities between Categories 88! Marketable Securities Summary 89! Financial Instruments and Derivatives ........................................................................... 92! Inventory ........................................................................................................................... 95! Classifications of Inventory 95! Valuing the Inventory When It Is Purchased 96! What Goods Are Included in Inventory 96! What Costs Are Included in Inventory 97! Determining Which Item Is Sold – Cost Flow Assumptions 98! First in First Out (FIFO) 98! Last in First Out (LIFO) 99! Average Cost 101! Effect of the Different Methods 101! The Frequency of Determining Inventory Balances 102! Periodic System 102! Perpetual System 103! The Physical Inventory Count 108! Gross Profit Calculation 108! Errors in Inventory 110! Dollar-Value LIFO 112! The DVLIFO Calculations 113! Recognizing Permanent Declines through the Lower of Cost or Market (LCM) 120! LIFO and LCM 121! Estimating Inventory 123! Gross Profit Method 123! Retail Method 124! Other Inventory Items 138! Property, Plant and Equipment ..................................................................................... 141! ii

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CMA Fundamentals, Vol. 2

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Measurement at Acquisition Internally Constructed Assets Method of Payment at Acquisition Capitalization of Interest on Internally-Constructed Assets Depreciation Calculation of Depreciation Depreciation Methods Depreciation in the Year of Acquisition and the Year of Disposal Subsequent Expenditures

141! 142! 142! 144! 150! 151! 151! 155! 158!

Acquisitions and Disposals by Exchange Accounting for Exchanges of Fixed Assets that Have Commercial Substance Accounting for Exchanges of Fixed Assets that Lack Commercial Substance Cash Received in a Nonmonetary Exchange that Lacks Commercial Substance Exchanges of Inventory Summary – Nonmonetary Exchanges of Assets Impairment of Long-Lived Assets to be Held and Used Disposals of Long-Lived Assets Long-Lived Assets to be Disposed of by Sale Involuntary Disposals Disposal by Donation

159! 160! 161! 163! 165! 167! 169! 172! 172! 173! 174!

Intangible and Other Assets .......................................................................................... 175! Introduction to Intangible Assets 175! Measurement at Acquisition 176! Amortization and Non-Amortization of Various Kinds of Intangibles 176! Specific Intangible Assets and their Accounting Treatments 177! Impairment of Intangible Assets 179! Impairment of Limited-Life Intangible Assets 179! Impairment of Indefinite-Lived Intangible Assets Other Than Goodwill 180! Impairment of Goodwill 180! Presentation of Intangible Assets 182! Research and Development (R&D) 183! Ways in Which Research & Development Costs Are Incurred 183! Accounting Treatment of R&D Expenses 183! Prepaid Expenses 184! Computer Software 185! Current Liabilities ........................................................................................................... 187! Definitely Determinable Liabilities Accounts Payable Short-Term Interest-Bearing Notes Payable Short-Term Zero-Interest-Bearing Notes Current Maturities of Long-Term Debt Dividends Payable © 2017 HOCK international, LLC. For personal use only by original purchaser. Resale prohibited.

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CMA Fundamentals, Vol. 2

Unearned Revenue Customer Advances and Deposits Received Sales Taxes Payable Income Taxes Payable Employee-Related Liabilities Estimated Liabilities

189! 189! 190! 190! 191! 191!

Compensated Absences Contingencies and Contingent Liabilities Warranties Premiums and Coupons Refinancing of Short-Term Obligations

191! 191! 193! 195! 197!

Non-Current Liabilities ................................................................................................... 198! 198! Bonds 198! Introduction to Bonds 202! Accounting for Bonds 237! Leases 238! Companies that Offer Leasing 238! Advantages of Leasing 239! Accounting for Leases 240! Classification of Leases by the Lessee and the Lessor 242! Leasing Questions 243! Long-Term Notes Payable Notes Issued at Face Value Notes Not Issued at Face Value Mortgage Notes Payable Troubled Debt Restructurings

243 !244! 246! 248!

Pensions ......................................................................................................................... 250! Types of Pension Plans Defined Contribution Plans Defined Benefit Plans

250! 250! 251!

Accounting for Income Taxes ....................................................................................... 253! Deferred Taxes 253! Presentation of Deferred Tax Assets and Liabilities on the Balance Sheet 262! Permanent Timing Differences 264! Treatment of Net Operating Losses 265! Intra-period Tax Allocation 267! Owners’ Equity ............................................................................................................... 268! Corporate Shareholders’ Equity Common Stock Issuing Common Stock Dividends Stock Dividends and Stock Splits iv

268! 269! 271! 272! 275!

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CMA Fundamentals, Vol. 2

Table of Contents

Preferred Stock Preferred Dividends Share Issuance Costs

277! 278! 279!

Retained Earnings Appropriated Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Accounting for Treasury Stock Recognition of Gain or Loss on Treasury Stock Transactions The Cost Method The Par Value Method General Treasury Stock Summary Treasury Stock Example Retirement of Shares Classification of Shares Stock Rights

280! 280! 281! 283! 283! 284! 284! 286! 287! 288! 290! 293! 294!

Stock Compensation ...................................................................................................... 296! Compensatory or Noncompensatory? 296! Liability or Equity? 296! Stock Option Plans 297! Restricted Stock 302! The Income Statement ................................................................................................... 304! Income Statement Format Classifications Within a Multi-Step Income Statement Income from Continuing Operations Gain/(Loss) from Discontinued Operations

304! 305! 305! 308!

Revenue Recognition ..................................................................................................... 314! When Revenue is Recognized Revenue Recognized at the Completion of Production Installment Method of Profit Recognition

314! 314! 315!

Cost Recovery Method of Profit Recognition Unearned Revenue The Deposit Method Revenue Recognition When the Right of Return Exists Sales With Buyback Agreements

319! 321! 321! 321! 322!

Channel Stuffing and Trade Loading Goods in Transit Consignment Sales Accounting by the Consignor Accounting by the Consignee Royalties Franchise Sales

323! 323! 324! 325! 325! 325! 326!

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CMA Fundamentals, Vol. 2

Long-Term Construction Contracts Completed Contract Method Percentage-of-Completion Method Recognizing Losses on Long-Term Contracts Closing Out a Completed Contract Under the Percentage-of-Completion Method Milestone Method of Revenue Recognition Summary of Coming Changes in Revenue Recognition Standards

328! 328! 329! 332! 333! 338! 339!

Accounting Changes and Error Corrections ............................................................... 340! Introduction to Accounting Changes and Error ...