2

Question 1

Useful information must contain the qualitative characteristics of:

Answer 1

Faithful representation and timeliness.

Question 2

Under US GAAP, items that are both unusual and infrequent are reported as:

Answer 2

a separate component of income from continuing operations.

Question 3

Reportable segment rules

Answer 3

To be significant enough to report on, a segment must be at least 10& of:

1. Combined rev
2. Op profit
3. Identifiable assets

Question 4

Under GAAP. the cumulative effect in inventory pricing change on prior years earnings reported on the financial statements for:

Answer 4

LIFO to WA

Question 5

Puchasing bond with discount JE

Answer 5

Face Value $100K
Discounted 10K

Investment in bond 90,000 DR
Cash 90,000 CR

Question 6

Sale of amortized discount bond at a premium.

Answer 6

premium 14K
Amortized discount 2K
Cash  114,000 DR
     Investment bond CR  92,000 
     Gain on sale CR 22,000

Question 7

Asset Turnover Formula:

Answer 7

Net Sales / Avg total assets

Question 8

Debt Ratio Formula:

Answer 8

Total Liabilities / Total Assets

Question 9

Impairment test for intangibles (for indefinite life intangibles under GAAP):

Answer 9

Undiscounted future CF’s

Note: only impairment if Negative
Note 2: need to identify if its held for use of held for disposal, as they both require different impairment methods.

Question 10

Impairment calculation (held for disposal)

Answer 10

FV of Asset

+cost of disposal
=Impairment loss

Question 11

Under GAAP, when can an intangible asset impairment be reversed if the FV of a previously impaired asset exceeds the BV.

Answer 11

Yes, this is allowed under GAAP for assets that are held for disposal. The opposite is true if the asset is held for use. In the case that the asset is held for disposal, reversal of a previously impaired asset is not allowed.

Question 12

Impairment test for intangibles (for indefinite life intangibles under IFRS) [Note: the same formula is used to impair goodwill])

Answer 12

Recoverable Amount (Definition: The greater of the FV less the cost to sell or the PVFCF’s [Also known as the value in use])

= Impairment Loss if negative and if positive, no impairment

Question 13

Impairment of Goodwill under GAAP (Note: this is done at the reporting unit level):

Answer 13

Carrying Value

=If positive, no impairment on goodwill. If negative, proceed to impairment calculation below:

FV goodwill
(FV of assets and liabilities

Question 14

R&D Rules under GAAP

Answer 14

Hardware: all are expensed
Software - Intended to sell:
Research is all expensed.
Development - Intended to sell: prior to technological feasibility is expensed.
Development after TF are capitalized.
Same rules apply for Development - Internal use.

Question 15

R&D Rules under IFRS

Answer 15

Same rules as GAAP except for the following:

Hardware: Is segregated in Before TF and After TF.

Question 16

Fundamental qualitative characteristics of useful financial information are”:

Answer 16

Relevance (predictive value, confirmatory value, and materiality) and faithful representation (Complete, and Neutral, and free from error).

Question 17

Enhancing qualitative characteristics: m

Answer 17

Comparability, Venerifiability [different people can see and arrive to the same conclusion], Timeliness, Understand-ability.

Question 18

Separate component of income from continuing items. In what category does this go in the multiple step IS?

Answer 18

Its reported as a separate item in income from continuing operations.