8/14 Flashcards
SEC regulations for the financial statement presentation and disclosure requirements for SEC filings can be found in
Regulations S-X
S-K is for non-financial reporting requirements for public companies
S-T is for electronic filings
S-B is for small business issuers
Costs of one year warranties are estimated and accrued for a one year period for financial reporting purposes
Determine how the tax difference would be classified on the FS
Temporary timing difference, non-current asset
Warranty expenses are deducted for tax purposes when paid. Therefore they are a future benefit when paid.
A company elects to prepay its liability insurance for a one year period that overlaps its BS date.
Determine the tax difference and how it would be classified on the FS
Temporary timing difference, non-current liability
Expenses paid in advance are taxed at the time of payment. Thus prepaid will reduce the current tax but increase tax in the future. Therefore it is a future tax liability.
On Aug 31, yr 2 Harvey decided to change from FIFO to WA inventory. Harvey is a calendar year basis, uses GAAP and does not present comparative FS. The cumulative effect of the change is determined as of?
Jan 1, yr 2.
If there were comparative FS then an adjustment to beginning RE would be necessary
On Apr 1, yr 2 Hill issued 200 of its $1,000 face bonds at 101 plus accrued interest. The bonds were dated Nov 1, yr 1 and bear interest at an annual rate of 9% payable semiannually on Nov 1 and May 1. What amount did hill receive from the bond issuance?
209,500
200x1,000x1.01 = 202,000
Interest accrued = 200,000x.09x5months = 7500
202,000+7500 = 209,500 cash received
The remainder of the transaction would be
Cr Bond payable 200,000
Cr Unamortized Premium 2,000
Cr Bond Interest Payable 7,500
Dawg Corp changed from FIFO to LIFO.
What is the type of change and method to account for
Change in Accounting principle
Prospective
Duck Co. changed from income tax basis to full accrual.
Type of change and method to account for
Correction of an Accounting error
Restate prior periods
A change from non GAAP to GAAP is considered to be error correction
Gosling LLC was acquired by Goose International
Type of Change and method to account for
Change in entity
Retrospective
Gosling will restate prior periods presented for comparative purposes. Under GAAP this restatement is called retrospective adjustment.
Kitty Corp decided to improve shareholder return by changing from LIFO to FIFO
Type of change and method to account for
Not an acceptable change, no change
If a company is changing its method presumably because it expects COGS or decrease, improve net income, shareholder returns and stock price then the change is not acceptable.
The final judgement in a lawsuit is decided in the current year. The amount is significantly greater than previously recorded in prior year.
Type of change and method to account for
Change in estimate
Prospective
No need to restate prior estimate.
Gruber Township owns and operates a utility that provides Water and Sewer services. Although the service is primarily supported by user fees, the system receives a general tax subsidy from the General Fund. What fund would Gruber most likely use to account for the transactions of its utility operations?
Enterprise Fund.
Operations primarily funded by outside user charges would be Enterprise fund.
Dollar LIFO computed index
Ending inventory at current year cost / Ending inventory at base year cost
A 10 mil budgeted excess of revenues over appropriations should be
- debited to budgetary control
- credited to budgetary control
- debited to estimated excess revenues control
- credited to estimated excess revenues control
credited to budgetary control
Gow and Cubb formed a partnership on march 1 and contributed the following
- Gow, Cash 80,000
- Cubb, Equip 50,000
The equipment was subject to a mortgage of 10,000 that was assumed by the partnership. The partners agreed to share profits and losses equally. Cubb’s capital account at March 1 should be:
40,000
FMV of equip 50,000 less mortgage assumed 10,000 = 40,000
When the recoverability of a building’s carrying value is determined to be impaired, the building’s FV is measured as the:
Price based on observable inputs in its principal market.
Marble foundation is financially interrelated with its beneficiary organization, Boulder University. Receipts of Marble Foundation would be displayed/ disclosed in the Boulder University FS as:
A change in the university’s interest in the foundation on the statement of activities
On Jan 1 Parker acquired 30% of Smiths outstanding stock for 400,000. During yr 1 Smith had net income of 100,000 and paid 30,000 in dividends. On Jan yr 2 Parker acquired additional 45% interest for 1,012,500. The FV Jan yr 2 was 2,250,000. What amount of gain will Parker record in yr 2?
254,000
yr 1 gain BB 400,000 + share of NI 30,000 - share of dividends 9,000 = 421,000
FV of their interest 75% * 2,250,000 = 1,687,500 - 1,012,500 = 675,000
675,000 - 421,000 = 254,000
How should state appropriations to a state university choosing to report as engaged only in business-type activities be reported in its statement of revenues, expenses and changes in net position?
Nonoperating revenues
receiving state appropriations represents non-exchange transaction
On Dec 31 yr 1 Wall Corp. issued 100,000, 10% bonds for 100,000. The bonds are dated Dec 31, yr 1 and mature Dec 31, yr 11. Interest will be paid semiannually on June 30 and Dec 31. In Wall’s Sept 30 yr 2 BS, what is the amount of accrued interest exp?
2500
100,000 x .1 x 3/12 = 2500
In determining major funds required for reporting in a government’s fund FS, a government would consider which of the following statistics?
- Aggregate Revenues or Expenditures
- Aggregate assets or liabilities
- Aggregate fund balance / equity
Aggregate revenues / expenditures
aggregate assets / liab.
If a premium on a bonds payable transaction is not amortized, what is the effect on interest expense and stockholder eq?
Bond premium is amortized over the life of the bond decreasing interest exp each period. If interest exp is not amortized then it will be overstated. If interest exp is overstated then net income will be understated. Net income understate means stockholder eq is understated.
Which of the following are included in general funds encumbrance account?
- outstanding vouchers payable amounts
- outstanding purchase order amounts
- excess of the amount of a purchase order over the actual expenditure for that order
outstanding purchase order amounts
Complex Casting has 500,000 shares of common stock outstanding. The company has the following potentially dilutive securities:
50,000 stock options exercisable at $50
60,000 stock warrants exercisable at $35
25,000 shares of $100 par 5% cumulative preferred stock. Convertible to 4 shares of common stock.
avg market price for company stock is $40
Net income for the year is $1,000,000, tax rate 40%.
determine whether each is dilutive or anti-dilutive
Stock options are $50 which is greater than 40 so anti-dilutive
Stock warrants are $35 so dilutive
PS 25,000 x 100 x .05 = 125,000
Basic EPS 1,000,000 - 125,000 PS / 500,000 = 1.75
If converted then there will be 600,000 outstanding.
100,000 / 600,000 = 1.67 PS is dilutive
All of the following statements regarding notes to the basic FS of governmental entities are true except
- it is acceptable to present notes in a very extensive format.
- Notes that are considered essential to the basic FS need to be presented
- some notes presented by governments are identical to notes presented in business FS
- the notes contain disclosures related to required supplementary info
notes contain disclosures related to required supplementary info
notes are related to the FS, not supplementary info
A 20 year lease, classified as an operating lease, provides a 10% increase in annual payments every five years. In the sixth year, compared to the fifth year, the lease will cause the following expenses to increase
- Lease
- Interest
Neither
The lessee shall record an operating lease using the straight-line basis. The variable payment would have been factored into the PV of the lease liab.
Jan 1, yr 1 Cain Corp issued 200 of its 9% 1,000 bonds at 103. The bonds are date Jan 1, yr 1 and mature Jan 1, yr 11. Interest is payable semiannually on Jan 1 and July 1. Cain paid bond issuance costs of 5,000. On Jan 1, yr 1 the net carrying value of the bond liab is
201,000
Dr Cash 201,000
Cr Premium 1,000
Cr Bond Liab. 200,000
A not for profit art museum has elected not to capitalize its donated permanent collections. In yr 1 a bronze statue was stolen. The statue was not recovered and insurance proceeds of 35,000 were paid to the NFP. This transaction would be reported in
The statement of cash flows as cash from investing activities
Insurance proceeds associated with the loss of long lived assets.
Contributed items not capitalized should not be recognized as revenues or gains.
Brad Corp has unconditional purchase obligations associated with product financing arrangements. These obligations are reported as liabilities on Brad’s BS, with the related assets. In the notes to the FS, the aggregate amount of payments for these obligations should be disclosed for how many years following the date of the latest BS?
5 years
yr 1, may corp acquired land by paying 75 down and signing a note with a maturity value of 1,000. On Dec 31, yr 6 May owed 40 accrued interest and 1,000 principal. May was in financial difficulty and was unable to make any payments. May and the bank agreed the amend the not as follows
- 40 accrued interest forgiven
- principal reduced from 1,000 to 950.
- May would pay 30 interest on new note.
What would May report as a gain on troubled debt restructuring?
60
Face 1,000 + accrued 40
FV of new debt 950 + Interest payment 30 = 980
1040-980 = 60
On Dec 31, yr 1 BS, Nilo Corp reported bonds payable of 8,000 less unamortized bond issuance costs of 430. On Jan 2, yr 2 Nilo retired 4,000 of the outstanding bonds plus 100 of the premium. What amount should Nilo report in its yr 2 IS as a loss on extinguishment?
315
Bond retired 4,000 less share of issuance cost (4,000/8,000*430) = 215 Net 3,785 Reacquisition price 4100 loss of 315
