(1) Conceptual Framework and Financial Reporting

Question 1

Define replacement cost

Answer 1

The amount of cash or equivalent that would be paid to acquire or replace an asset currently.

Question 2

Effect in Financial Statements from changing in accounting principle

Answer 2

Solution: retained earnings at the beginning of the period of change (LESS) what retained earnings would have been if the change was applied to all the effected areas.

Question 3

When errors are found in the FS’s

Answer 3

Restatement of prior periods is required

Question 4

Depreciation expense entre

Answer 4

DR: Depreciation expense
CR: Accumulated Depreciation

Question 5

J/E to record when assets are fully depreciated and written off

Answer 5

DR: Accumulated Depreciation
CR: Asset (which is being written off)

Question 6

Journal entry to record revenues that have not been performed

Answer 6

DR: A/R
CR: Deferred Revenue

Question 7

Journal entry to record revenues that were previously recognized

Answer 7

DR: Deferred Revenue
CR: REvenue

Question 8

Journal entry to record revenue related to services or products not given in exchanged

Answer 8

DR: Cash or A/R
CR: Unearned Rev

Question 9

Recognize Rev over time (output method)

Answer 9

Sale of goods = Newspars

Question 10

Recognize Rev over time (input method)

Answer 10

Sale of services = CPA Firm

Question 11

Percentage of completion (IFRS and GAAP) formula

Answer 11

1. Total contract price - Estimated TOTAL cost = Gross profit
2. Total const to date / Estimated TOTAL cost of contract = Gross profit Percentage
3. Step 1 X Step 2= Profit to date
4. Profit to date at Year end - Profit to date at beginning of period = Current year to date gross profit

Question 12

Comprehensive income

Answer 12

Represente all changes is stockholders equity that come from non-owner sources.

Formula: NI + Other comprehensive income

Question 13

Other comprehensive income definition and formula

Answer 13

OCI: rev, exp, gains , losses that are included in comprehensive income but excluded from net income.

Mnemonic (PUFFER)
(P)ension Adjustments
(U)nrealized Gains and Losses (available-for-sale debt securities)
(F)oreign currency items
(E)ffective portion of cash flow hedges
(R)evaluation surplus

Question 14

Journal entry for an accrued expense

Answer 14

DR: Expense
CR: Accrued Expense

(Note: the credit accrued expense is categorized as an accounts payable on the BS)

Question 15

According to FASB and IASB conceptual frameworks, useful information must show the fundamental qualitative characteristics of:

Answer 15

Faithful representation and relevance

Question 16

Held for Sale Criteria

Answer 16

1. Management commits to plan to sell the component
2. The component is available for immediate sale in its present condition
3. An active program to locate a buyer has been initiated
4. The sale of the component is probable and the is expected to be completed within a year
5. The sale of the component is being actively marketed
6. Actions required to complete the sale make it unlikely that significant changes to the plan will be made.

Question 17

Effect of changes in accounting estimates

Answer 17

Accounting estimates require for current and future year changes to be made.

Question 18

How should items that are both unusual and infrequent should be reported?

Answer 18

Under US GAAP, items that are both unusual and infrequent are reported as a separate component of income from continuing operations.

Question 19

Multiple step income statement sections:

Answer 19

• Gross Margin
• Income(loss) from operations
• Other revenues and gains
• Other expenses and Losses
• Income before unusual items and income tax
• Income before income tax
• Net income (or income from continuing operations)

Question 20

A change in estimated useful life of a depreciable asset is treated as:

Answer 20

a change in estimate and its handled prospectively. No adjustment in RE is necessary.

Question 21

Devinde relevance and materiality under FASB and IASB

Answer 21

Relevance is a fundamental qualitative characteristic, and materiality is a component of relevance

Question 22

Revenue Recognition mnemonic

Answer 22

ISTAR
(I)dentify contract with customer
(S)separate performance obligation identified
(T)ransaction price determined
(A)llocate transaction price to separate performance obligation
(R)ecognize revenue when or as the entity satisfies the performance obligation

Question 23

How are incremental costs recognized? These expenses are those that would have not been incurred if there wasnt a contract.

Answer 23

These costs are recognized as assets.

Question 24

According to FASB and IASB, predective value is an engrdient of

Answer 24

Relevance