PART-2 Becker Professional Education I CPA Exam Review IX Financial SUMMARY A Method Asset and liability approach-balance sheet approach B Differences Differences between income tax returns and GAAP financial statements fall into two groups: Permanent No deferred tax asset or liability is required because the difference will never reverse Temporary Deferred tax asset or liability must be recorded because the temporary difference will reverse a Deferred Tax Liabil ity The consequences of temporary differences that will reverse in the future and create future taxes b Deferred Tax Asset The consequences of temporary differences that will reverse in the future and create future tax benefits (1 ) Val uation Allowance The contra-asset that is to be established to reflect that it is "more likely than not" that the deferred tax asset will not be completely realized C Measurement Use applicable enacted tax rates This is the tax rate expected to apply to taxable income in the future periods that the deferred tax asset or liability is expected to be paid or realized Tax Rate Changes Adjusted in the period of a new tax rate (when signed i nto law) The new impact (increase or decrease) to the deferred tax account will be reflected in "income from continuing operations" (IDEA) D C lassification Criteria for current vs noncurrent: Balance Sheet Related Classify according to the related asset or liability causing the temporary difference Non-balance Sheet Related Classify based upon the expected reversal or benefit period Netti ng I Offsetting Current (asset and liability) must be netted Noncurrent (asset and liability) from a particular jurisdiction must be netted © DeVry/Becker Educational Development Corp All rights reserved F6·S1 Financial Becker Professional Education I CPA Exam Review C O R P O RAT E TAXAT I O N S U M MARY I Re TAX RETURN GAAP F I NANCIAL STAT E M ENTS G R OSS I N C O M E / Gross sales Income Income Installment sales Income Income when received / / Rents and royalties in advance Income when earned Income when received State tax refund Income Income Dividends Equity method Income is subsidiary's earnings Income is dividends received 100 / 80 / 70% exclusion No exclusion Excluded forever / / / I T E M S NOT I N C L U D I B L E IN "TA X A B L E I N C O M E " State and municipal bond interest Income Not taxable income / Life insurance proceeds Income Generally not taxable income / Gain / loss on treasury stock Not reported Not reported / / O R D I N A RY E x P E N S E S Cost of goods sold Uniform capitalization rules Uniform capitalization rules Officers' compensation Itop) Expense $1,000,000 limit Bad debt Allowance lestimated) Direct write-off / Estimated liability for contingency (e.g., warranty) Expense (accrue estimated) No deduction until paid / Interest expense Business loan Expense Deduct Expense Not deductible Contributions All expensed Limited to 10% of adj taxable income Loss on abandonment / casualty Expense Deduct / / Tax-free investment / - / Loss on worthless subsidiary Expense Deduct Depreciation MACRS vs straight line Slow depreciation Fast depreciation / Section 179 depreciation Not allowed (must depreciate) 2012 = $125,000 / Different basis of asset Use GAAP basis Use tax basis Expense $5,000 maximum / 15 year excess / Amortization Start up / organizational expenses Franchise Amortize Amortize over 15 years / Impairment Test Amortize over 15 years / Cost over years Percentage of sales / Not allowed Percentage of sales Profit and pension expense Expense accrued No deduction until paid / Accrued expense (sO% owner I family) Expense accrued No deduction until paid / State taxes (paid) Expense Deduct Percentage in excess of cost Meals and entertainment Expense / / / Goodwill Depletion Percentage vs straight line (cost) / / / / / Generally 50% deductible G A A P E x P E N S E I T E M S THAT A R E N OT TAX D E D U CT I O N S : life insurance expense (corporation) Expense Not deductible / / Penalties Expense Not deductible Lobbying / political expense Expense No deduction / Expense Not deductible / Income Income Federal income taxes SPECIAL ITEMS Net capital gain / Report as loss Not deductible / Carryback / carryover 13 year> back years forward) Not applicable Unused loss allowed as a STCL / Related shareholder Report as a loss Not deductible Net capital loss / Net operating loss Report as a loss Carryback or carryover 20 / Research and development Expense Expense / Amortize / Capitalize / F6-52 / / © DeVry/Becker Educational Development Corp All rights reserved Financial Becker Professional Education I CPA Exam Review APPEN DIX I F RS vs u.s GAAP Note: U nless specifically noted, I FRS and U.s GAAP accounting rules are the same This chart highlights the significant differences between IFRS and U.s GAAP covered in this lecture ISS U E IFRS U S GAAP Defined benefit pension plans The defined benefit obligation ( DBO) is the defined benefit pension plan liability The projected benefit obligation (PBO) is the defined benefit pension plan liability Defined benefit pension plans Defined benefit cost includes service cost and net interest on the defined benefit liability (asset) The components of net periodic pension cost are SI RAGE-�ervice cost, interest cost, Return on plan assets, Amortization of prior service cost, yain/loss amortization, ,fxisting net obligation/ asset amortization Defined benefit pension plans The components of defined benefit cost are generally The components of net periodic pension cost must be aggregated and presented as one amount on reported separately on the income statement; there is no requirement that these amounts be aggregated the income statement and presented as one amount Defined benefit pension plans Prior service cost is referred to as past service cost When a plan is amended, past service cost increases the DBO and is reported as defined benefit service cost on the income statement Under I F RS, past service cost is not booked to other comprehensive income Prior service cost increases the PBO and other comprehensive income in the period incurred and is then a mortized to pension expense over the plan participant's remaining years of service Defined benefit pension plans Gains and losses are referred to as remeasurements of the net defined benefit liability (asset) and are reported in other comprehensive income Remeasurements of the net defined benefit liability (asset) reported i n OCI a re not reclassified (amortized) to the income statement in subsequent periods Entities have two choices when accounting for gains and losses: The funded status (DBO - fair value of plan assets) of the pension plan is reported on the balance sheet as the net defined benefit liability (asset) A liability is reported if the plan is underfunded (DBO > fair value of plan assets) and an asset is reported if the plan is overfunded (DBO < fair value of plan assets) If a net defined benefit asset is reported, the amount of the asset cannot exceed the present va lue of future economic benefits available to the entity in the form of cash refunds or reductions in future contributions that result from the overfunding I FRS not specify whether an entity should classify the net defined benefit liability (asset) as current or noncurrent The funded status of an overfunded pension plan is reported in full as a noncurrent asset The funded status of an underfunded pension plan is reported i n ful l as a current liability, a noncurrent liability, or both Defined benefit pension plans © DeVry/Becker Educational Development Corp All rights reserved Recognize on the income statement in the period incurred Recognize in other comprehensive income in the period incurred and then amortize to pension expense using the corridor approach F6-53 Financial Becker Professional Education I CPA Exam Review ISSUE IFRS Defined benefit pension plans Remeasurements of the net defined benefit liability Unrecognized prior service cost and unrecognized (asset) are included in other comprehensive income pension gains and losses are reported in and are not reclassified (amortized) to the income accumulated other comprehensive income The statement in subsequent periods However, a n entity pension benefit asset or liability is equal to the can transfer those amounts recognized in other funded status of the pension plan comprehensive income within equity Sick pay benefits Entities are required to accrue sick pay benefits as services are rendered by employees Employers are not required to accrue nonvesting accumulating rights to receive sick pay benefits Sick pay benefits are accrued only when the four criteria for liability recognition are met and the estimate is reliable Accounting for Va luation allowances are not permitted A deferred tax asset is recognized when it is probable that sufficient taxable profit will be available against which the temporary d ifference can be utilized A valuation allowance is recognized when it is more l i kely than not that part or all of the deferred tax asset will not be realized Uncertain tax positions are not specifically addressed The tax consequences of events should be accounted for in a manner consistent with the expected resolution of the tax position with tax authorities as of the balance sheet date Uncertai n tax positions are recognized using a two step process: Accounting for income taxes Current and deferred taxes are calculated using enacted or substantively enacted tax rates Current and deferred taxes are calculated using enacted tax rates only Accounting for Adjustments for changes in deferred tax balances due to changes in tax laws or rates are recognized on the income statement, except when the deferred tax balance arises from a transaction or event that is recognized i n other comprehensive income When a deferred tax balance arises from a transaction or event that is recognized in other comprehensive income, adjustments should also be recorded in other comprehensive income All adjustments for changes in deferred tax balances due to cha nges in tax laws or rates are recognized on the income statement Under I FRS, deferred tax assets and deferred tax liabilities are reported as noncurrent on the balance sheet Deferred tax assets and deferred tax liabilities may be netted if the entity has a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authorities Deferred tax l iabilities and assets should be classified and reported as current or noncu rrent on the balance sheet based on the classification of the related asset or liability If there is no related asset or liability, then the timing of the reversal is used All deferred tax assets and liabilities classified as current must be offset (netted) and presented as one amount (a net current asset or a net current l iability) All deferred tax liabilities and assets classified as noncurrent must be offset (netted) and presented as one amount (a net noncurrent asset or a net noncurrent liability) income taxes Accounting for income taxes income taxes Accounting for income taxes F6·54 U.S GAAP Recognition of the tax benefit Measurement of the tax benefit © DeVry/Becker Educational Development Corp All rights reserved Financial Becker Professional Education I CPA Exam Review CLASS QU EST I O N S § Qj c � E � � � a z Q) u '0 c �VI �VI c u::: < c u < CLASS Q U E S T I O N S A N S W E R WORKSHEET Task-based simulation 10 11 12 13 14 G R A DE Attempt Multiple-choice Questions Task-based Simulations 1st Questions correct ; 13 questions = % Questions correct : questions = % 2nd Questions correct : 13 questions = % Questions correct ; questions = % 3rd Questions correct ; 13 questions = % Questions correct ; questions = % Final Total questions correct © DeVry/Becker Educational Development Corp All rights reserved .; 14 questions = % F6-55 Financial Becker Professional Education I CPA Exam Review NOTES F6-56 © DeVry/Becker Educational Development Corp_ All rights reserved Becker Professional Education I CPA Exam Review Financial CPA·00690 The following information pertains to Gali Co.'s defined benefit pension plan for the current year: Fair value of plan assets, beginning of year Fair value of plan assets, end of year Employer contributions Benefits paid $350,000 525,000 1 0,000 85,000 In computing pension expense, what amount should Gali use as actual return on plan assets? a b c d $65,000 $ 50,000 $ 75,000 $260,000 CPA·OS398 Big Books, I nc has the following information related to its defined benefit pension plan: December 31 Year Projected benefit obligation Fair value of plan assets Unrecognized prior service cost Unrecognized net transition asset $ , 500,000 ,400,000 200,000 60,000 December Year Projected benefit obligation Fair value of plan assets Service cost $ ,740,000 ,670,000 220,000 Assumptions Discount rate 6% Expected return on plan assets 8% Big Books makes an annual pension plan contribution of $200,000 The company's employees had an average remaining service life of 20 years on December , Year The company paid benefits of $70,000 in Year and expects to pay benefits totaling $ 70,000 to retired employees in Year Big Books has an effective tax rate of 30% The actual return on plan assets was 0% What is the funded status of Big Books' pension plan on December , Year ? a $70,000 underfunded b $70,000 overfunded c $ 00,000 underfunded d $1 00,000 overfunded co DeVry/Becker Educational Development Corp All rights reserved F6-57 Becker Professional Education I CPA Exam Review Financial TBS-0001 O n December , Year and Year , Simple Fields Company had the following defined benefit pension plan balances: 213 11Y1 213 11Y2 Fair value of plan assets $ ,900,000 $ , 65,000 Projected benefit obligation $ , 25,000 $ 2,352,500 Unrecognized prior service cost $ $ Unrecognized net gain $ 250,500 $ 284,700 Unrecognized net transition obligation $ $ 75,000 35,000 57,500 At December , Year , the employees participating in the plan had an average remaining service period of years During Year 2, the company completed the amortization of its unrecognized net transition obligation, made a contribution of $275,000, and paid benefits of $200,000 The Year service cost was $300,000 The company uses an expected return on plan assets of 8% when calculating net periodic pension cost, but had an actual return on Plan A's assets of 0% in Year The company's discount rate is 6% Calculate the U.S GAAP net periodic pension cost for Year Enter the amounts in the shaded cells in Column A A Service cost Interest cost Return on plan assets (expected) Amortization of prior service cost Gain/loss amortization Existing net transition obligation amortization CPA-00702 Bounty Co provides postretirement health care benefits to employees who have completed at least years service and are aged 55 years or older when retiring Employees retiring from Bounty have a median age of 62, and no one has worked beyond age 65 Fletcher is hired at 48 years old The attribution period for accruing Bounty's expected postretirement health care benefit obligation to Fletcher is during the period when Fletcher is aged: a b c d 48 to 65 48 to 58 55 to 65 55 to 62 F6-58 © DeVry/Becker Educational Development Corp_ All rights reserved Financial Becker Professional Education I CPA Exam Review CPA-00703 What information should be disclosed by a company providing health care benefits to its retirees? I II The assumed health care cost trend rate used to measure the expected cost of benefits covered by the plan The accumulated postretirement benefit obligation a b c d I and I I I only I I only Neither I nor I I CPA-00701 An employer's obligation for postretirement health benefits that are expected to be provided to or for an employee must be fully accrued by the date the: a b c d Employee i s fully eligible for benefits Employee retires Benefits are utilized Benefits are paid C PA-00704 Which of the following is not one of the liability reporting criteria for post-employment benefits? a The amount of the obligation can be reasonably estimated b The obligation relates to rights that vest or accumulate c The obligation depends upon whether the individual continues to be available for questions and assistance after employment ceases d The payment of the compensation is probable CPA-00925 The following information pertains to Rik Co.'s two employees: Vacation rights Weekly Number of vest or Name salary weeks worked accumulate Ryan Todd $800 $600 52 52 Yes No Neither Ryan nor Todd took the usual two-week vacation during the current year In Rik's December financial statements, what amount of vacation expense and liability should b e reported? a b c d $2,800 $ ,600 $1 ,400 $0 (0 DeVry/Becker Educational Development Corp A l l rights reserved F6-59 Gl ossa ry Becker Professional Education Sum-of-the-Vears'-Digits Depreciation Sum-of-the-years' depreciation is an accelerated method of depreciation that provides higher depreciation in the early years of the asset's life and lower depreciation in the later years A specific formula is used to calculate the depreciation for each year; salvage value is included in the calculation See straight-line depreciation and declining balance depreciation and units of-production depreciation - Support Services Support services a re all services that a re not program services See also program services - Swap Contract A private agreement between two parties, generally assisted by an intermediary, to exchange future cash payments Common swaps include interest rate swaps, currency swaps, equity swaps, and commodity swaps A swap agreement is equivalent to a series of forward contracts - Technological Feasibility For computer software development accounting under U.S GAAP, technological feasibility is established u pon completion of a detailed program design or completion of a working model See also computer software developed internally and computer software development costs - I CPA Exam Review Term Endowment Term endowments consist of assets that must be held for a specified term, in accordance with the donor's stipulations They a re reported as temporarily restricted net assets See also endowment fund and permanent endowment and q uasi-endowment - Terminal Funding Terminal funding is a type of pension plan funding in which a sponsoring organization pays the entire pension plan liability u pon retirement of an employee, generally by purchasing an annuity-type insurance policy Terminal funding is a cash basis method and is not GAAP See also pay-as-you-go funding - Termination Benefits Termination benefits arise when employees are paid to terminate their rights to future pension payments See also settlement and curtailment - Timeliness Timeliness is having the information available while it is able to influence decisions See also relevance and predictive value and feedback value - Times Interest Earned Times interest earned is income before interest and taxes divided by interest Times interest earned is also known as the interest coverage ratio - Total Asset Turnover The total asset turnover ratio is net sales divided by average total assets - Temporal Method Foreign currency remeasurement, also known as the temporal method, is the restatement of financial statements denominated in a foreign currency to the entity's functional currency Remeasurement is required when an entity's books are not maintained in its functional currency See also translation, current method, and functional currency - Temporarily Restricted Net Assets For not-for-profit organizations, temporarily restricted net assets are similar to permanently restricted net assets except the donor imposed stipulations either expire by passage of time or can be fulfilled and removed by actions of the organization See also unrestricted net assets and permanently restricted net assets - Temporarily Restricted Net Assets, by Purpose For not-for-profit organizations, tempora rily restricted assets a re sometimes restricted by p u rpose, which means that money must be spent as the donor stipulates Temporarily restricted assets can be restricted by time, pu rpose, or for the acquisition of plant See also tempora rily restricted net assets - Temporary Difference Temporary differences affect the deferred tax computation Temporary differences are items of revenue and expense that enter into pretax financial income in a period before they enter into taxable income or enter into pretax financial income in a period after they enter into taxable income Temporary differences reverse in future periods See also permanent d ifference and comprehensive a lloca t ion - Term Bond A term bond is a bond that has a single fixed maturity date See also serial bond - GL-34 Total Income Tax Expense Total income tax expense or benefit for a period is the sum of current income tax expense/benefit and deferred income tax expense/benefit See also current income tax expense and deferred income tax expense - Trade Discounts Trade discounts are quantity discounts Sales and accounts receivable a re recorded net of trade discounts See also cash discounts - Trading Securities Trading securities are those securities (both debt and equity) that a re bought and held principa lly for the purpose of selling them in the near term Trading securities generally reflect active and frequent buying and selling with the objective of generating profits on short-term d ifferences in price Securities classified as trading securities a re normally reported as cu rrent assets Under I F RS, trading securities are called " held-for-tradi ng" securities See also availa ble-for-sa le securities and held to-maturity securities - Transfers-in Transfers-in are transfers into one fund from another They represent the source of financial resources Transfers-in are other financing sources See also other financing sources and transfers-out - Transfers of Operations A combination of a government's activities (less than a legal entity) with either an existing government or with a new government - Transfers-out Transfers-out a re transfers out of one fund to another They represent the use of financial resources Transfers-out are other financing uses See also other financing uses and transfers-in - I!:I DeVry/Becker Educational Development Corp A l l rights reserved -, Becker Professional Education I Translation Foreign currency translation is the restatement of financial statements denominated in the functional currency to the reporting currency using an appropriate rate of exchange See also remeasurement and functional currency - A treasury bond is a bond that has been reacquired, but not retired, by the issuer (like treasury stock) Its par value is shown on the balance sheet as a deduction from bonds payable See also treasury stock Treasury Bond Glossary CPA Exam Review - Treasury Stock - Treasury stock is a corporation's own stock that has been issued to shareholders and subsequently reacquired but not retired Treasury stock is not generally considered an asset because it is widely held that a corporation cannot own part of itself Treasury stock is not entitled to any of the rights of ownership given to common stock, such as the right to vote or to receive dividends In addition, a portion of retained earnings equal to the cost of treasury stock may be restricted and may not be used as a basis for the declaration or payment of dividends (depending on applicable state law) See also cost method (of treasury stock accounting) and par value method (of treasury stock accounting) Treasury Stock Method - For earnings per share calculations, the dilutive effect of options and warrants and their equivalents is applied using the treasury stock method The treasury stock method assumes that the proceeds from the exercise of stock options, warrants, and their equivalents will be used by the corporation to repurchase treasury shares at the prevailing (or average) market price, resulting in an incremental increase in shares outstanding, but not the full amount of shares that are issued on exercise of the common stock equivalents See also diluted earnings per share and if-converted method A troubled debt restructuring (impaired loan) is a debt restructuring in which the creditor allows the debtor certain concessions to improve the likelihood of collection that would not be considered under normal circumstances Concessions include items such as reduced interest rates, extension of maturity dates, reduction of the face amount of the debt, and reduction of the amount of accrued interest The concessions must be made in light of the debtor's financial difficulty, and the objective of the creditor must be to maximize recovery of the investment Troubled debt restructurings are often the result of legal proceedings or of negotiation between the parties See also impairment of loans Troubled Debt Restructuring - Unamortized Discount (Premium) Unamortized discount (premium) is the amount of the original discount or premium on the bond that has not yet been amortized See also discount and premium - Unappropriated Retained Earnings Unappropriated retained earnings is that portion of retained earnings that has not been appropriated See also retained earnings and appropriated retained earnings - © DeVry/Becker Educational Development Corp All rights reserved Unassigned Fund Balance Fund balance resources associated with spendable assets neither restricted, committed nor assigned Unassigned fund balance is a residual equity classification for the general fund Only the general fund should have a positive unassigned fund balance Other governmental funds might have negative unassigned fund balances if all their other fund balance classifications have no balance - Unconditional Promise - An unconditional promise to give (the promise is also known as a pledge) is a contribution, and is recorded as revenue at its fair market value when the promise is made An unconditional promise may be written or verbal However, verbal pledges should be documented by the organization internally and may be more difficult to collect See also contribution and conditional promise Underfunded A defined benefit pension plan is underfunded when the fair value of the pension plan assets is less than the projected benefit obligation (PBO) - Underlying An underlying is a specified price, rate, or other variable (interest rate, security or commodity price, foreign exchange rate, index of prices or rates, etc.), including a scheduled event that may or may not occur See also derivative and notional amount and settlement amount and payment provision - Unearned Interest Revenue For capital (finance) leases, unearned interest revenue is the difference between the lease payments receivable (which is recorded as a debit) and the present value of the minimum lease payments (which is recorded as a credit) See also gross investment in the lease and net investment in the lease - Unearned Revenue Unearned revenue (revenue received in advance) is recorded as a liability because it is an obligation to perform a service in the future and is reported as revenue in the period in which it is earned, that is, when no further future service is required Examples include rent received in advance, interest received in advance on notes receivable, and subscriptions received in advance - Unexpired Cost An unexpired cost is a cost that will expire in future periods and be charged (matched or allocated in a systematic and rational manner) against revenues from future periods See also cost and expenses and matching principle and expired cost - Unguaranteed Residual Value The unguaranteed residual value of the lease is the estimated fair value of the leased property at the end of the lease term that is not guaranteed by either the lessor or by a third party unrelated by the lessor See also guaranteed residual value - The units-of-production method relates depreciation to the estimated production capability of an asset and is expressed in a rate per unit or hour See also straight-line depreciation and sum-of-the years-digits depreciation and declining balance depreciation Units-of-Production Depreciation - GL-35 Glossary Becker Professional Education Unrealized Gains and Losses - In marketable securities accounting, unrealized gains and losses are those that are determined in the marking-to-market of the securities If the unrealized gains and losses are for trading securities, the unrealized gains and losses are treated as realized gains and losses and included in income If the unrealized gains and losses are for available-for-sale securities, the unrealized gains and losses are included in other comprehensive income See also trading securities and available-for-sale securities Unrecognized Prior Service Cost -Unrecognized prior service cost is the portion of prior service cost that has not yet been recognized (amortized) by the employer in net periodic pension cost See also net periodic pension cost and prior service cost I CPA Exam Review Valuation Allowance - In deferred tax accounting, a valuation allowance is recognized under U.S GAAP when it is more likely than not that part or all of a deferred tax asset will not be realized See also deferred tax asset Variable Interest Entity -A corporation, partnership, trust, LLC, or other legal structure used for business purposes that either does not have equity investors with voting rights or lacks the sufficient financial resources to support its activities Variance Power - Variance power is the ability to use assets in any way a not-for-profit organization deems appropriate See also agency transaction -If information is verifiable (objective), it means that the same results could be duplicated with the same measurement techniques (which is the primary concern for auditors of financial statements) See also reliability and neutrality and representational faithfulness Verifiability Unrestricted cash is used for all current operations See also cash and restricted cash Unrestricted Cash - Unrestricted Contribution -Unconditional promises to contribute in the future are reported as restricted support (implied time restriction) at the present value of the estimated future cash flows using a discount rate commensurate with the risks involved even if their ultimate use is unrestricted An example of an appropriate discount rate on short-term promises resulting from current fund raising activities would be the collection rate from past campaigns If the unconditional promises are expected to be collected or paid in less than one year, they may be measured at net realizable value since that amount is a reasonable estimate of fair value See also restricted contribution Unrestricted Current Funds (unrestricted operating or - Funds used to record a not-for-profit's activities that are supported by resources over which the governing boards have discretionary control Fund balances generally consist of unrestricted net assets general) Unrestricted Net Position (governmental) - For governmental organizations, the unrestricted component of net position includes the net amount of the assets, deferred outflows of resources, liabilities and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position See also net position and restricted net position and net investment in capital assets Unrestricted Net Assets (not-for-profit) For not-forprofit organizations, unrestricted net assets are available to finance general operations of the particular organization, and may be expended at the discretion of the governing board They are net assets that are not permanently restricted or temporarily restricted by donor-imposed stipulations Internally board designated funds are considered unrestricted See also temporarily restricted net assets and permanently restricted net assets - Useful Life - Useful life is the period of time over which an asset's cost will be depreciated See also salvage value GL·36 Vested Benefits -Vested benefits are pension plan benefits that already belong (vest) to employees who have earned their benefits by reason of having reached retirement age and/or who otherwise meet unique pension plan requirements (fully vested after only five years of service) The benefits are vested whether that person has actually retired, and they are not contingent on remaining in the service of the employer Generally, pension plans require money to be left in the plan until retirement Voluntary Health and Welfare Organizations - Voluntary health and welfare organizations include organizations for the blind, mental health associations, the Salvation Army, and a variety of other not-for-profit organizations Organizations that are funded primarily by contributions and that provide services which are not funded to any great degree by any other source and which benefit community health or welfare are voluntary health and welfare organizations See also colleges and universities and foundations and health care organizations and not-for-profit organizations Voluntary Non-exchange Transactions - Voluntary non-exchange transactions are instances in which the government receives resources and does not provide equal value (grants) See also derived tax revenues and imposed non-exchange revenues and government-mandated non exchange transactions Weighted-Average Method - Under the weighted-average method of inventory accounting, the average cost of each item in inventory is the weighted average of the cost of all of the items in inventory at the end of the period The weighted average is determined by dividing the total cost of inventory available by the total number of units of inventory available, remembering that the beginning inventory is included in both totals This method is particularly suitable for homogenous products and a periodic inventory system See also specific identification method, FIFO method, moving average method, and LIFO method © DeVry/Becker Educational Development Corp All rights reserved r Becker Professional Education I CPA Exam Review Weighted-Average Number of Common Shares Outstanding - For earnings per share calculations, the weighted-average n umber of common shares outstanding d uring a period is the mean (average) of shares outstanding and assumed to be outstanding for earnings per share calculations Shares sold or reacquired during the period (including treasury stock) should be weighted for the portion of the period they were outstanding See also basic earnings per share and income available to common shareholders Weighted Average of Accumulated Expenditures - Interest to be capitalized for a particular period is determined by applying an interest rate to the average amount of accumulated expenditures for the qualifying asset during the period (known as avoidable interest) See also construction p eriod interest and capitalization of interest period Glossary Without Recourse - If an assignment of accounts receivable is without recourse, the assignee (the factor) assumes the risk of any losses on collections If the assignee is unable to collect all of the accounts receivable, it has no recourse against the assignor See also factoring of accounts receivable and pledging of accounts receivable and with recourse Working Capital Working capital is current assets minus current liabilities See also current ratio and current assets and current liabilities - Zero Coupon Bond A zero coupon bond (also known as a deep discount bond) is a bond sold with no stated interest but rather at a discount and redeemed at face value See also stated interest rate and face value - With Recourse If an assignment of accounts receivable is with reco u rse, the factor has an option to resell any uncollectible receivables to the original assignor If an assignment of accounts receivable is with recourse, two treatments are possible The transfer may be considered either a sale or a borrowing (with the accounts receivable as collateral) See also factoring of accounts receivable and pledging of accounts receiva ble and without recourse - () DeVry/Becker Educational Development Corp_ All rights reserved Gl-37 Becker Professional Education Glossary I CPA Exam Review NOTES GL-38