Topic list for Exam III - Professor Ray Pfeiffer. Required course for all TCU Accounting majors. PDF

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Professor Ray Pfeiffer. Required course for all TCU Accounting majors....

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Financial Reporting II List of topics for Exam III Ray Pfeiffer April 20, 2018 Taxes       

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Given a fact pattern, be able to identify deferred tax assets and deferred tax liabilities, income taxes payable, and (GAAP) income tax expense. Know how to handle both permanent and temporary differences. Know what to do if there is a tax rate change. Know what to do when a firm has a loss for tax purposes and how to handle the loss carryback/carryforward option and related deferred tax asset consequences. Be able to analyze a fact pattern related to forecasts of future profitability and the implications for the valuation of deferred tax assets. Know how to record a valuation allowance for DTAs when considered necessary. Know what to do about the situation when a firm adopts a tax position in its tax return that, upon challenge from the IRS might be reversed (socalled ‘uncertain tax positions’). Know how to prepare the required disclosures for income taxes, including the reconciliation of the statutory tax amount/rate to the reported income tax expense/effective rate, the breakdown of tax expense into ‘current’ (currently payable) and ‘deferred’ amounts, and required disclosures about DTAs and DTLs, carryforwards, etc. Be able to explain the impact of preparers’ discretion (over estimates used in measuring valuation allowances for DTAs and probabilities of outcomes for uncertain tax positions) on the measurement of income tax expense (and thus net income).

Equity  

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Be able to explain the structure of the equity section of the balance sheet (contributed capital, retained earnings, and accumulated other comprehensive income). Explain what the parallels and differences are between net income and other comprehensive income, and between retained earnings and accumulated other comprehensive income. (Probably useful to do so in the context of a specific item that appears there, such as deferred gains/losses for pensions.) Be able to do the accounting for issuing new shares of stock, declaring and paying dividends (cash, property, and stock), closing revenue/expense/gain/loss accounts to retained earnings, repurchasing stock (treasury stock), re-issuing treasury stock, and stock splits (small and large).

Share-based compensation 

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Know how to account for companies’ grants of restricted stock, RSUs, and stock options (primarily) to employees. Be aware of the limitations of valuation models used to establish values for the financial instruments used. Be able to explain the departure between the accounting measure of expense and the potentially VERY different amount of value transferred to employees through share-based plans once the future stock price is actually known. Be able to explain the pros and cons of using share-based vehicles to compensate employees in terms of the impacts on the firm as well as the incentive alignment between shareholders and managers that are improved or harmed.

EPS  

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Know how to compute Basic EPS. Know how to compute Diluted EPS, including scenarios with multiple potentially dilutive instruments and proper handling of the order of consideration. Know how to apply the ‘if converted’ method for convertible securities and the ‘treasury stock’ method for options and warrants. Be able to prepare the required disclosures for EPS, including the reconciliation between net income and the final numerator of DEPS and between the weighted-average number of common shares outstanding and the final denominator of DEPS, and also disclosures of any excluded instruments that were anti-dilutive....