2.5 Other Financial Statement Presentations

Question 1

Consolidated and Combined Financial Statements:

When are consolidated financial statements used?

Answer 1

• when one entity holds a controlling financial interest in one or more other entities

Question 2

Consolidated and Combined Financial Statements:

Are consolidated financial statements required to be used when there is a controlling interest?

Answer 2

Yes - according to GAAP

Question 3

Consolidated and Combined Financial Statements:

How do consolidated financial statements report financial data?

Answer 3

• report the financial position, results of operations, and cash flows as if the consolidated entities were a single economic entity

Question 4

Consolidated and Combined Financial Statements:

When are combined financial statements used?

Answer 4

• to combine the statements of the subsidiaries without consolidating them with those of the parent

Question 5

Consolidated and Combined Financial Statements:

Are combined financial statements an allowable substitute for consolidated statements?

Answer 5

No

Question 6

Consolidated and Combined Financial Statements:

When are combined statements useful?

Answer 6

• when one individual owns a controlling financial interest in several entities with related operations or common management

Question 7

Other Bases of Accounting:

Identify 3 examples of financial statements being prepared using a basis of accounting not in accordance with GAAP

Answer 7

1 - cash basis

2 - basis used for tax purposes

3 - basis used to comply with requirements of a regulator

Question 8

Other Bases of Accounting:

What must financial statements include when using an Other Comprehensive Basis Of Accounting (OCBOA)?

Answer 8

• a summary of significant accounting policies that discusses the basis used and how it differs from GAAP

Question 9

Cash Basis:

Define the strict cash basis of accounting

Answer 9

• revenues and expenses are recognized when cash is received or paid regardless of when goods are delivered or received or when services are rendered

Question 10

Cash Basis:

Identify the principles ignored in the cash basis that are critical to the accrual basis of accounting

Answer 10

• revenue and expense recognition principles

Question 11

Cash Basis:

What type of enterprise would benefit from the cash basis of accounting?

Answer 11

small businesses operated as a sole proprietorship

Question 12

Modified Cash Basis:

What is the modified cash basis of accounting?

Answer 12

• the cash basis of accounting with modifications for items having substantial support, such as inventory reporting, accruing income taxes, and capitalizing and depreciating fixed assets

Question 13

Modified Cash Basis:

What type of industry or businesses normally use the modified cash basis of accounting?

Answer 13

• professional services firms (physicians, realtors, architects, etc.)

Question 14

Income Tax Basis:

What is the income tax basis of accounting?

Answer 14

basis applied mainly to inventory (MACRS) to calculate income tax liability