Definition of Subpart F

Subpart F

Special category of foreign-source "unearned" income that is currently taxed by the IRS whether
or not it is remitted to the U.S.

Controlled foreign corporation (CFC)

A foreign corporation whose voting stock is more than 50% owned
by U.S. stockholders, each of whom owns at least 10% of the voting power.

Economic income

Cash flow plus change in present value.

Extra or special dividends

A dividend that is paid in addition to a firm's "regular" quarterly dividend.

First notice day

The fIRSt day, varying by contracts and exchanges, on which notices of intent to deliver
actual financial instruments or physical commodities against futures are authorized.

First-call

With CMOs, the start of the cash flow cycle for the cash flow window.

First-In-First-Out (FIFO)

A method of valuing the cost of goods sold that uses the cost of the oldest item in
inventory fIRSt.

First-pass regression

A time series regression to estimate the betas of securities portfolios.

Fixed-income equivalent

Also called a busted convertible, a convertible security that is trading like a straight
security because the optioned common stock is trading low.

Fixed-income instruments

Assets that pay a fixed-dollar amount, such as bonds and preferred stock.

Fixed-income market

The market for trading bonds and preferred stock.

Foreign banking market

That portion of domestic bank loans supplied to foreigners for use abroad.

Foreign bond

A bond issued on the domestic capital market of anther company.

Foreign bond market

That portion of the domestic bond market that represents issues floated by foreign
companies to governments.

Foreign currency

foreign money.

Foreign currency option

An option that conveys the right to buy or sell a specified amount of foreign
currency at a specified price within a specified time period.

Foreign currency translation

The process of restating foreign currency accounts of subsidiaries into the
reporting currency of the parent company in order to prepare consolidated financial statements.

Foreign direct investment (FDI)

The acquisition abroad of physical assets such as plant and equipment, with
operating control residing in the parent corporation.

Foreign equity market

That portion of the domestic equity market that represents issues floated by foreign companies.

Foreign exchange

Currency from another country.

Foreign exchange controls

Various forms of controls imposed by a government on the purchase/sale of
foreign currencies by residents or on the purchase/sale of local currency by nonresidents.

Foreign exchange dealer

A firm or individual that buys foreign exchange from one party and then sells it to
another party. The dealer makes the difference between the buying and selling prices, or spread.

Foreign exchange risk

The risk that a long or short position in a foreign currency might have to be closed out
at a loss due to an adverse movement in the currency rates.

Foreign exchange swap

An agreement to exchange stipulated amounts of one currency for another currency
at one or more future dates.

Foreign market

Part of a nation's internal market, representing the mechanisms for issuing and trading
securities of entities domiciled outside that nation. Compare external market and domestic market.

Foreign market beta

A measure of foreign market risk that is derived from the capital asset pricing model.

Foreign Sales Corporation (FSC)

A Special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.

Foreign tax credit

Home country credit against domestic income tax for foreign taxes paid on foreign
derived earnings.

Income beneficiary

One who receives income from a trust.

Income bond

A bond on which the payment of interest is contingent on sufficient earnings. These bonds are
commonly used during the reorganization of a failed or failing business.

Income fund

A mutual fund providing for liberal current income from investments.

Income statement (statement of operations)

A statement showing the revenues, expenses, and income (the
difference between revenues and expenses) of a corporation over some period of time.

Income stock

Common stock with a high dividend yield and few profitable investment opportunities.

Investment income

The revenue from a portfolio of invested assets.
Investment management Also called portfolio management and money management, the process of
managing money.

Last-In-First-Out (LIFO)

A method of valuing inventory that uses the cost of the most recent item in
inventory fIRSt.

LIFO (Last-in-first-out)

The last-in-fIRSt-out inventory valuation methodology. A method of valuing
inventory that uses the cost of the most recent item in inventory fIRSt.

Monthly income preferred security (MIP)

Preferred stock issued by a subsidiary located in a tax haven.
The subsidiary relends the money to the parent.

Net income

The company's total earnings, reflecting revenues adjusted for costs of doing business,
depreciation, interest, taxes and other expenses.

Other sources

Amount of funds generated during the period from operations by sources other than
depreciation or deferred taxes. Part of Free cash flow calculation.

Perfected first lien

A fIRSt lien that is duly recorded with the cognizant governmental body so that the lender
will be able to act on it should the borrower default.

Special dividend

Also referred to as an extra dividend. Dividend that is unlikely to be repeated.

Special drawing rights (SDR)

A form of international reserve assets, created by the IMF in 1967, whose
value is based on a portfolio of widely used currencies.

Specialist

On an exchange, the member firm that is designated as the market maker (or dealer for a listed
common stock). Only one Specialist can be designated for a given stock, but dealers may be Specialists for
several stocks. In contrast, there can be multiple market makers in the OTC market.

Spread income

Also called margin income, the difference between income and cost. For a depository
institution, the difference between the assets it invests in (loans and securities) and the cost of its funds
(deposits and other sources).

Taxable income

Gross income less a set of deductions.

Underwriting income

For an insurance company, the difference between the premiums earned and the costs
of settling claims.

Upstairs market

A network of trading desks for the major brokerage firms and institutional investors that
communicate with each other by means of electronic display systems and telephones to facilitate block trades
and program trades.

FIFO (First In, First Out)

An inventory valuation method that presumes that the fIRSt units received were the fIRSt ones
sold.

INCOME STATEMENT

An accounting statement that summarizes information about a company in the following format:
Net Sales
– Cost of goods sold
--------------------
Gross profit
– Operating expenses
--------------------
Earnings before income tax
– income tax
--------------------
= Net income or (Net loss)
Formally called a “consolidated earnings statement,” it covers a period of time such as a quarter or a year.

INCOME TAX

What the business paid to the IRS.

LIFO (Last In, First Out)

An inventory valuation method that presumes that the last units received were the fIRSt ones
sold.

NET INCOME

The profit a company makes after cost of goods sold, expenses, and taxes are subtracted from net sales.

RATIO OF NET INCOME TO NET SALES

A ratio that shows how much net income (profit) a company made on each dollar of net sales. Here’s the formula:
(Net income) / (Net sales)

RATIO OF NET SALES TO NET INCOME

A ratio that shows how much a company had to collect in net sales to make a dollar of profit. Figure it this way:
(Net sales) / (Net income)

Residual income (RI)

The profit remaining after deducting from profit a notional cost of capital on the investment in a business or division of a business.

Source document

The document that records a transaction and forms the basis for recording in a business’s
accounting system.

Dividend income

income that a company receives in the form of dividends on stock in other companies that it holds.

First-in, first-out (FIFO)

A method of accounting for inventory.

Income Statement

One of the basic financial statements; it lists the revenue and expense accounts of the company.
The income Statement is prepared for a given period of time.

Interest income

income that a company receives in the form of interest, usually as the result of keeping money in interest-bearing accounts at financial institutions and the lending of money to other companies.

Last-in, first-out (LILO)

A method of accounting for inventory.

Net income

The last line of the income Statement; it represents the amount that the company earned during a specified period.

Specialized journals

Journals that are used to aid in segregating duties and making the accounting function efficient.

Unearned revenue

Money that has been paid by customers for work yet to be done or goods yet to be provided.

earnings before interest and income tax (EBIT)

A measure of profit that
equals sales revenue for the period minus cost-of-goods-sold expense
and all operating expenses—but before deducting interest and income
tax expenses. It is a measure of the operating profit of a business before
considering the cost of its debt capital and income tax.

income statement

Financial statement that summarizes sales revenue
and expenses for a period and reports one or more profit lines for the
period. It’s one of the three primary financial statements of a business.
The bottom-line profit figure is labeled net income or net earnings by
most businesses. Externally reported income statements disclose less
information than do internal management profit reports—but both are
based on the same profit accounting principles and methods. Keep in
mind that profit is not known until accountants complete the recording
of sales revenue and expenses for the period (as well as determining any
extraordinary gains and losses that should be recorded in the period).
Profit measurement depends on the reliability of a business’s accounting
system and the choices of accounting methods by the business. Caution:
A business may engage in certain manipulations of its accounting methods,
and managers may intervene in the normal course of operations for
the purpose of improving the amount of profit recorded in the period,
which is called earnings management, income smoothing, cooking the
books, and other pejorative terms.

net income (also called the bottom line, earnings, net earnings, and net

operating earnings)
This key figure equals sales revenue for a period
less all expenses for the period; also, any extraordinary gains and losses
for the period are included in this final profit figure. Everything is taken
into account to arrive at net income, which is popularly called the bottom
line. Net income is clearly the single most important number in business
financial reports.

enterprise resource planning (ERP) system

a packaged software program that allows a company to
(1) automate and integrate the majority of its business processes,
(2) share common data and practices across the entire enterprise, and
(3) produce and access information in a realtime environment

Foreign Corrupt Practices Act (FCPA)

a law passed by U.S. Congress in 1977 that makes it illegal for a U.S. company to engage in various “questionable” foreign payments and
makes it mandatory for a U.S. company to maintain accurate
accounting records and a reasonable system of internal
control

manufacturing resource planning (MRP II)

a fully integrated materials requirement planning system that involves
top management and provides a basis for both strategic
and tactical planning

residual income

the profit earned by a responsibility center that exceeds an amount "charged" for funds committed to that center

scarce resource

a resource that is essential to production
activity, but is available only in some limited quantity

special order decision

a situation in which management must determine a sales price to charge for manufacturing or service jobs outside the company’s normal production/service market

strategic resource management

organizational planning for the deployment of resources to create value for customers and shareholders; key varibles in the process include the management of information and the management of change in response to threats and opportunities

tax-deferred income

current compensation that is taxed at a future date

tax-exempt income

current compensation that is never taxed

Fixed-income security

A security that pays a specified cash flow over a
specific period. Bonds are typical fixed-income securities.

Odd first or last period

Fixed-income securities may be purchased on dates
that do not coincide with coupon or payment dates. The length of the fIRSt and
last periods may differ from the regular period between coupons, and thus the
bond owner is not entitled to the full value of the coupon for that period.
Instead, the coupon is pro-rated according to how long the bond is held during
that period.

First in, first-out costing method (FIFO)

A process costing methodology that assigns the earliest
cost of production and materials to those units being sold, while the latest costs
of production and materials are assigned to those units still retained in inventory.

Income

Net earnings after all expenses for an accounting period are subtracted from all
revenues recognized during that period.

Income statement

A financial report that summarizes a company’s revenue, cost of
goods sold, gross margin, other costs, income, and tax obligations.

Income tax

A government tax on the income earned by an individual or corporation.

Last-in, first-out (LIFO)

An inventory costing methodology that bases the recognized cost of
sales on the most recent costs incurred, while the cost of ending inventory is based
on the earliest costs incurred. The underlying reasoning for this costing system is
the assumption that goods are sold in the reverse order of their manufacture.

Manufacturing resource planning (MRP II)

An expansion of the material requirements planning concept, with additional computer-based capabilities in the areas of
direct labor and machine capacity planning.

Net income

The excess of revenues over expenses, including the impact of income taxes.

Operating income

The net income of a business, less the impact of any financial activity,
such as interest expense or investment income, as well as taxes and extraordinary
items.

Unearned revenue

A payment from a customer that cannot yet be recognized as earned
revenue, because the offsetting service or product for which the money was paid has
not yet been delivered.

common-size income statement

income statement that presents items as a percentage of revenues.

income statement

Financial statement that shows the revenues, expenses, and net income of a firm over a period of time.

residual income

Also called economic value added. Profit minus cost of capital employed.

Disposable Income

income less income tax.

Foreign Exchange

The currency of a foreign country.

Foreign Exchange Market

A worldwide market in which one country's currency is bought or sold in exchange for another country's currency.

Foreign Exchange Reserves

A fund containing the central bank's holdings of foreign currency or claims thereon.

Incomes Policy

A policy designed to lower inflation without reducing aggregate demand. Wage/price controls are an example.

National Income

GDP with some adjustments to remove items that do not make it into anyone's hands as income, such as indirect taxes and depreciation. Loosely speaking, it is interpreted as being equal to GDP.

National Income and Product Accounts

The national accounting system that records economic activity such as GDP and related measures.

Permanent Income Hypothesis

Theory that individuals base current consumption spending on their perceived long-run average income rather than their current income.

Real Income

income expressed in base-year dollars, calculated by dividing nominal income by a price index.

Tax-Related Incomes Policy (TIP)

Tax incentives for labor and business to induce them to conform to wage/price guidelines.

Employee Retirement Income Security Act of 1974 (ERISA)

A federal Act that sets minimum operational and funding standards for employee benefit
plans.

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