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FAR > 7/30 > Flashcards

7/30 Flashcards

1
Q

A machine costing 800,000 has an annual depr of 100,000 over 8 years. During year 4 reed concluded that the machine suffered permanent impairment and 200,000 is a reasonable estimate of the recoverable value. In Reed’s yr 4 balance sheet, what is the carrying amount of the machine?

A

160,000

New BV 200,000
remaining live 5 years.
annual depr 200,000 / 5 = 40,000
200,000 - 40,000 = 160,000

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2
Q

Which of the following statements is most accurate in regard to the capitalization of computer software costs to be licensed?

Capitalized software costs are reported on the balance sheet at cost
Coding and testing costs after tech feasibility is established can be capitalized
Amortization begins once tech feasibility is established
Software costs intended to be licensed can only be expensed

A

Coding and testing costs after tech feasibility can be capitalized

prior to tech feas, coding and testing are expensed. after they are capitalized.

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3
Q

For GAAP purposes, costs to develop computer software for ultimate sale

Should be expensed if they are relevant design costs incurred before tech feas
Should be capitalized if they are relevant design cots incurred before tech feas
Should be capitalized
Should be expensed as incurred

A

Should be expensed if they are relevant design costs incurred before tech feas

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4
Q

An entity tested its goodwill for impairment and determined the following

BV 1,015,000
FV 935,000
Estimated FV of cash flows 940,000
Goodwill bal. 110,000

What amount of goodwill impairment should be reported?

A

80,000

BV - FV

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5
Q

Organization costs are treated how on the FS

A

Expensed immediately

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6
Q

Big Brown Copr has the following derivative investments Yr1, Yr 2
Speculative 280,000 yr 1, 310,000 yr 2
FV Hedge 600,000 yr 1, 745,000 yr 2
Cash Flow Hedge 430,000 yr 1, 510,000 yr 2

What amount of gain from these derivatives should Big Brown report

A

175,000 Net Income and 80,000 OCI

No hedge (speculative) and FV hedges report to current earnings
Cash flow hedges are included in OCI
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7
Q

On Feb 1, Yr 1 Davis issues 12% 1,000,000 10 yr bonds at 1,117,000. Davis reacquired all of these bonds at 102 plus interest on May 1. The unamortized bond premium was 78,000. What is Davis’ gain on the retirement?

A

58,000

Dr Bond Payable 1,000,000
Dr Unamortized Premium 78,000
Cr Cash 1,020,000
Cr Gain 58,000

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8
Q

Jones has the following

Outstanding common 110,000 yr 1 and 2
Convertible preferred 10,000 yr 1 and 2
8% convertible bonds 1,000,000 yr 1 and 2

Jones paid dividends of 3.00 per share on its preferred stock. Preferred shares are convertible into 20,000 share of common stock. The bonds are convertible into 30,000 shares of common stock. Net Income is 850,000. Assume income tax is 30%.

What is diluted earnings per share?

A

5.66

Net income 850 + Interest 80 - Tax on Interest 24 = 906,000
Adjusted shares 110,000 + 20,000 + 30,000 = 160,000

906,000 / 160,000 = 5.6625

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9
Q

What are reported in the financing activities section of the statement of cash flows

A

Cash changes in interest bearing debt, changes in own eq.

resources from owners, issuing stock
paying cash dividends or stock repurchase
Issuing bonds, notes, debenture, debt,
payment of principal

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10
Q

Toigo purchased merchandise from a vendor on Nov 20 for 500 british pounds. Payment was due Jan 20. The spot rates were

Nov 20 1.25
Dec 31 1.2
Jan 20 1.17

How should the foreign currency transaction gain be reported on Toigo’s FS Dec 31

A

As a gain of 25 in the income statement

625 nov 20 vs 600 Dec 31.

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11
Q

Governmental funds are

A 
General
Special Rev
Debt Services
Capital projects
Permanent

They use current financial resources measurement focus

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12
Q

Fund accounting

GRaSPP SE CIPPOE

A

Governmental
General, Special Revenue, Debt Service, Capital Projects, Permanent

Proprietary - Business Type
Internal Service, Enterprise

Fiduciary - Excluded from Gov FS
Custodial, Investment Trust, Private Purpose trust, Pension and Other Employee benefit trust

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13
Q

Measurement focus of governmental funds

A

Current financial resources - Governmental

Economic resources - Proprietary and Fiduciary

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14
Q

Leasehold improvements should be amortized over

A

The lesser of the remaining life of the lease or life of improvement

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15
Q

For a troubled debt restructuring involving a modification of terms, which of the following specified by new terms would be compared to the carrying amount of the debt to determine if the debtor would report a gain?

  • The PV of debt at the modified interest rate
  • The total future cash payments
  • The amount of future cash payments designated as principal repayments
  • The PV of debt at the original interest rate
A

The total future cash payments

Carrying amount - total future cash payments = gain

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16
Q

Criteria for a financing lease

A 
Ownership transfer at end of lease
Written purchase option
PV of lease payments = fair value of asset
Lease terms are 75% of useful life
Asset is specialized
17
Q

The board of directors granted 10,000 stock options to the CEO. Option price 25. The options are excersisable on Dec. 31, yr 4. Options expire Dec 31, yr 5. FV of each option is 5 at grant date. The corp must recognize

  • 50,000 of compensation expense in yr 1
  • 50,000 of compensation expense when the options are exercised
  • 12,500 of compensation expense per year for four years
  • 10,000 of compensation expense per year for five years
A

12,500 compensation expense per year for four years

10,000 shares x 5 fv = 50,000 over 4 years is 12,500

18
Q

Which of the following statements is correct regarding reporting comprehensive income?

  • a separate statement of comprehensive income is required
  • comprehensive income must include all changes in stockholder equity
  • accumulated other comprehensive income is reported in the stockholder eq section
  • comprehensive income is reported in the year end statements but not in interim
A

accumulated other comprehensive income is reported in the stockholder equity section of the balance sheet.

19
Q

According the FASB conceptual framework, which of the following would cause earnings to differ from comprehensive income

  • unrealized gain from trading debt securities
  • unrealized holding loss from AFS debt securities
  • realized gain from sale of held to maturity debt security
  • dividends declared but not paid
A

Unrealized holding loss from AFS debt securities

20
Q

Concept is preparing its income statement for year end. In preparing the statement the line item displayed before considering income tax is

  • accumulated other comprehensive income
  • income from continuing operations
  • income from operations
  • net income
A

Income from operations

21
Q

Steam acquired equipment under a finance lease for six years. Lease payments were 60,000. Interest is 5%. Annuity factor for six years is 5.0757. What amount should steam report as interest expense?

A

15,227

Finance lease is recorded as DR ROU Asset and Cr Lease Liability for 304,542 (60,000x5.0757). Interest expense will be 304,542x5%=15,227

22
Q

How should a publicly traded company report a change in fair value hedge AFS security attributable to foreign exchange risk?

A

In earnings

FV hedge is an instrument designed to hedge exposure from changes in FV of a recognized asset or liability.

23
Q

Goodwill should be tested for value impairment at which of the following levels under GAAP?

A

Each reporting unit.

24
Q

Reynolds is owed 18,000 above and beyond his capital balance.
Calculate the bonus charged to each partner

Lewis 35%, Reynolds 25%, Sandford 40%

A

Lewis 35/75 x 18,000 = 8400

Sandford 40/75 x 18,000 = 9600

25
Q

Goodwill method booked for partner leaving

Extra paid 18,000

Lewis 35%, Reynolds 25%, Sandford 40%

A

Goodwill booked 18,000/.25=72,000

Lewis 72,000 x .35 = 25200
Reynolds 72,000 x .25 = 18000
Sandford 72,000 x.4 = 28800

26
Q

Scott exchanged nonmonetary assets with Dale, no cash was exchanged. The carrying amount of the asset surrendered by Scott exceeded both the FV and BV of the asset received by Dale. Scott Should

Recognize the difference between the BV surrendered and BV received as a loss
Recognize the difference between the BV surrendered and FV received as a gain
Recognize the difference between the BV surrendered and FV received as a loss
Recognize no gain or loss

A

Recognize the difference between the BV surrendered and FV received as a loss

27
Q

Able leased equipment to Baker under a noncancelable lease with a transfer of title. Will able record depreciation expense and/or interest revenue related to the lease?

A

No depreciation and yes Interest revenue.

Interest income earned on payment date.
Asset will be removed from Able’s books.

28
Q

Contingency Treatments

A

Accrue and Disclose probable and reasonably estimated
Disclose probable and no estimate
Disclose reasonably possible

29
Q

Which of the following describes the relationship of interest expense related to bonds payable when a discount on bonds payable has been recorded using the effective interest method?

Interest expense will decrease each year
Interest expense will increase by the same amount each year
Interest expense will be the same each year
Interest expense will increase by a larger amount each year

A

Interest expense will increase by a larger amount each year.

30
Q

Quattro signed a lease from Cinco on July 1, yr 1 for equip. with a five year life. The lease does not include any option to buy the equipment. 4 year lease term. No ownership transfer. Five equal payments of 10,000 per year with first due upon signing. Incremental borrowing rate 8%.

PV of annuity 8% for 5 yrs = 3.993
PV of annuity 8% for 4 yrs = 3.312

What should Quattro report for Equipment, Accum Depr and Lease Payable

A

Finance lease as lease term is greater than 75% of useful life.

Lease Liab = 10,000 x 3.312 = 33,120
Equipment = 33,120 + 10,000 initial payment = 43,120
Accum Depr = 43,120 / 8 = 5,390 (4 is the lesser of the lease or useful life)

FAR (10 decks)

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