Impairment losses

For long-lived assets, you test impairment by comparing undiscounted cash flows of the asset to the carrying amount of the asset. If undiscounted cash flows is less than carrying amount, recognize impairment. The asset must now be reported at fair value. So the impairment is the carrying amount minus the fair value of the asset. You would think it would be carrying amount minus undiscounted cash flows, since that's what you originally compared to determine whether to recognize an impairment in the first place, but it's not. It's seems inconsistent; it's like saying since undiscounted CF < carrying amount, you get to subtract FV from carrying amount. But that's the way SFAS 144 goes. Just remember you have to report the asset at fair value on the balance sheet.

Capitalizing interest

Let's think philosophically for a moment: what is capitalized interest? Well capitalizing is when something is reported as an asset instead of as an expense. And interest is of course the charge for borrowing money. So capitalizing interest is when a company gets to report the charge they pay on debt (interest) as an asset on the balance sheet instead of an expense on the income statement (capitalize). Only certain situations allow this sort of accounting treatment, and they are addressed in SFAS 34 (paragraphs 9 and 10).

Actual or avoidable interest, that is the question...
As SFAS 34 says, the amount of interest to capitalize is the lower of: actual interest OR avoidable interest. Actual interest is easy: it's the actual interest rate a business pays for capitalizable debt. Avoidable interest is a little tricker because it's calculated. It's the average accumulated expenditures times the incremental borrowing rate. Remember that in accounting, averages are calculated as the beginning balance plus the ending balance divided by two. Also remember to pick the lower of the two.

Remember that whichever rate you use, you can only capitalize up until the moment that asset is ready for use. Once it goes into use, starting expensing that interest just like all other interest.

Foreign Exchange Transactions

Gains and losses from foreign exchange transactions are reported on the income statement under "Other Income".

When a US company makes a sale in another country, they usually use that country's local currency. When they make a sale on account, the receivable is affected by fluctuations in the exchange rate.

More Stockholders' Equity

I guess the best place to start out would be to see what a Stockholders' Equity (SE) Section looks like. Book examples are always nice, but the companies are always made up, so it's hard to trust them. Here's a screenshot of Google's SE section (what does it say that that was the first company to come to mind?):

Here's a link to Google's entire 10-Q filing with the SEC for reference. I'm looking at the bottom of page 3.

First up, is Convertible preferred stock with outstanding shares and balance of 0 (glad that's there). Next is Common stock separated into Class A and B stock and what looks to be combined with Additional pain-in capital (APIC). Some companies combine their APIC accounts, and some separate it from among their sources. The CPA exam seems to like separating it.

Stockholders' Equity Section - EPS calculations

Remember to apply stock splits and stock dividends retroactively. This matters for the denominator of the EPS (basic and dilutive) calculation.

The Stockholders' Equity section. No big deal, actually...

There's a lot more to the Stockholders' Equity section than just Common Stock, Preferred Stock and Retained Earnings. The Additional Paid-in Capital (APIC) accounts can get pretty tricky, especially when dealing with the fact that each type of equity account has its own APIC account. I'm not talking about the ones that relate to the good old-fashioned Common and Preferred Stock accounts; looking back at it - that was easy. There are APIC accounts for every type of equity account you can imagine (and some you can't): stock options, stock subscriptions, stock appreciation rights, stock dividends, scrip dividends and probably a few others I'm leaving out.

Keeping track of the nuances between the Par and Fair Value method also requires an extra cup of coffee, but that's actually not that hard with a few practice problems (I just like coffee). I haven't even gotten to the Basic and Diluted EPS calculations yet. Looks like I have my day set for tomorrow.

Keep studying.

Deferred Taxes - No Big Deal

I am starting on deferred taxes today. No big deal.