8/16 Flashcards
Call option
Gives the holder the right to buy at a specified price.
Put option
Gives the holder the right to sell at a specified price.
Criteria for employee termination benefits accrual
Management commits to a plan
The plan identifies the employees to be terminated and expected completion date
the terms of benefit employees will receive
actions are unlikely to incur significant changes
Huff Corp began operations on Jan 1 yr 1. Huff recognizes revenues from all sales under the accrual method and uses the installment method for tax purposes. They have the following data
Yr 1 accrual 800,000 installment 300,000
Yr 2 accrual 1,300,000 installment 700,000
Tax rates are 25% for yr 2 and 20% after. There are no temporary differences. In the yr 2 BS the deferred income tax liability should be:
220,000
800-300=500
1300-700=600
500+600=1100
1100x.2=220
On march 1, yr 1 Finch City issues 10 year general obligations bonds with interest payable March 1 and Sept 1. The proceeds were used to finance the construction of a civic center. During the fiscal year end June 30, yr 1, no resources had been provided to the debt service find for the payment of principal and interest.
On the June 30 yr 1 FS, Finch should report construction in progress for the civic center in the
Cap projects fund
Gov wide FS
Gov wide FS
capital project fund activities are closed out at year end.
Accumulated other comprehensive income is reported in which of the following FS
statement of financial position
income statement
statement of cash flows
statement of comprehensive income
statement of financial position
AOCI is component of equity. it would not be reported on the income statement, SoCF, SoCI as it includes income from current and prior periods.
The city of Lamponi had a property tax levy that totalled 3,000,000. The city anticipates that it will collect 2,500,000 in yr 1 and 300,000 withing 60 days of yr 2. Five percent of the levy is deemed to be uncollectible. How much would the city record as deferred outflows associated with this transaction?
0
Dr Property Tax Receivable 3,000,000
Cr Tax Revenue 2,800,000
Cr Deferred Inflows 50,000
Cr Allowance 150,000
John City entered into a lease agreement representing a contract that transfers ownership for equipment during the year. How should the asset obtained through the lease be reported in John City’s gov wide statement of net position?
General capital asset
key is transfer of ownership.
Dale City is accumulating financial resources that are legally restricted to payments of general LT debt principal payments. At Dec 31, yr 1 5,000,000 has been accumulated for principal payments and 300,000 for interest payments. These restricted funds should be accounted for in the
Debt service fund
principal and interest payments are accumulated in the debt service fund.
Verona Co had 500 in short term liabilities at the end of the current year. Verona issued 400 of common stock subsequent to the end of the year but before FS issued. The proceeds were used to pay the short-term debt. What amount should Verona report as a short term liability?
100
FS have not been issued and the actual amount is known. Dr short term liab and Cr Long Term Liab. If equity was issued to after BS date but before issue date to pay for debt then it cannot be included in current liab or equity.
Water own’s 80% of Fire Co. On Dec 31, yr 1 Fire sold equipment to Water at a price in excess of Fire’s carrying amount but less than its original cost. On a consolidated BS, the carrying amount of the equipment should be reported at
Water’s cost minus any gain recorded by Fire
When the effective interest method of amortization is used for bonds sold at a premium, the amount of the interest payable for an interest period is calculated by
multiplying the face of the bond at the beginning of the period by the contractual interest rate
A corporation issued 4 mil 3% bonds at 101. There were 200,000 detachable stock warrants included as part of the sale. Each warrant allows the bondholder to purchase one share of no par common stock for $12 per share. On the date of issuance the stock warrants had a fair value of $1. By what amount did the corporation’s LT debt increase at issuance?
3,840,000
4,000,000 x 1.01 = 4,040,000
warrants 200,000 x FV $1 = $200,000
4,040,000 - 200,000 = 3,840,000
Hail damaged several of Toncan’s vans. Hailstorms had frequently caused similar damage to Toncan’s vans. Over the years Toncan saved money by not buying hail insurance and either paying for repairs or selling damaged vans and replacing them. In yr 10 the damaged vans were sold for less than their carrying amount. How should the hail damage be reported in Toncan’s FS under GAAP?
Actual yr 10 loss in continuing operations with no disclosure
Because the hailstorms are frequent, the damage would be shown in continuing operations. No disclosure since hail damage is common occurrence.
Jan 1 yr 10 Poe Corp sold a machine for 900 to Saxe Corp, its wholly owned subsidiary. Poe paid 1100 for the machine and has 250 acc. depr. Poe estimated 100 salvage value and depreciated the machine straight line over 20 years. In Poe’s Dec 31, yr 10 consolidated BS, this machine should be included as
Cost 1,100 acc. depr 300
The effect of the sale will be eliminated. So it will be shown at cost and accumulated one more year of depr.
Valley town public school system is administered by a separately elected board of Education. The board of education is not organized as a separate legal entity and does not have the power to levy taxes or issue bonds. Valley’s City Council approves the school system budget. How should Valley report the public school system’s annual financial results?
The board of educations is a special purpose local gov with a separately elected board. But it is not a separate legal entity. It will fail the SELF test and results in blended repoting.
SELF test
Separately
elected board
Legally separate
Fiscally independent
On Dec 31, insurance costs were incurred but unpaid, were not recorded. If these insurance costs were related to WIP, what is the effect of the omission on accrued liabilities and retained earnings in the Dec 31 BS?
Accrued Liab
Retained earnings
Accrued liabilities would be understated
Retained earnings no effect.
Since they are WIP, they have not hit CoGS yet.
Peg Co leased equipment from Howe Copr on July 1, yr 1, for an eight year period. Equal payments under the lease are 600 and are due July 1 of each year. The first payment was made on July 1, yr 1. The rate of interest contemplated by Peg and Howe is 10%. The selling price of the equipment is 3520 and the cost of the machine is 2800. The lease is recorded as a sales-type lease. What is the amount of profit on the sale and interest revenue that Howe should record for the year?
Profit on sale 720
3250 - 2800 = 720
Interest rev 146
3520 - 600 = 2920 x .1 = 292 x 6/12 = 146
The governmental fund measurement focus is on the determination of
income
financial position
current financial resources
Financial position and current financial resources
income determination is a focus of proprietary and fiduciary funds.
GASB 34 establishes financial reporting standards for state and local governments. Basic FS and reqired supplementary info for general purpose governments should consist of
gen purpose FS, notes to FS, combining FS and statistical schedules
liftable FS, notes to FS, and statistical schedules
MD&A, basic FS and required supplementary info
basic FS, req supplementary info introduced after basic FS
MD&A, basic FS and req supplementary info
The town of Seabreeze adopted its budget for the year ended Dec 31, yr 1. The town formally integrates its budget into its accounting records. In journalizing its budget the town would record:
Dr Estimated Rev
Cr appropriations control
Dr/Cr budgetary control
Appropriations is the approved spending. Budgetary control is the variance between estimated rev and appropriations.
Reversed at end of period.
Fay corp pays its salespersons fixed monthly salaries and commissions on net sales. Sales commissions are computed and paid on a monthly basis, and the fixed salaries are treated as advances against commissions. However, if the fixed salespersons exceed their sales commissions for a month, such excess is not charged back to them.
Salesperson A - Fixed 10,000 - Net Sales 200,000 - commission 4%
Salesperson B - Fixed 14,000 - Net Sales 400,000 - commission 6%
Salesperson C - Fixed 18,000 - Net Sales 600,000 - commission 6%
What amount should Fay accrue for sales commission payable?
28,000
200,000 x .04 + 400,000 x .06 + 600,000 x .06 = 68,000
+2,000 as salesperson A did not meet the Fixed salary = 70,000
Less the fixed salary paid = 70,000 - 42,000 = 28,000
A nongovernmental NFP organization had the following
Proceeds from sales of investments 80,000
Purchase of property, plant and equipment 10,000
Proceeds from long-term debt 100,000
Loss on sale of investment 5,000
What amount should be reported as net cash provided by financing activities in the the statement of cash flows?
100,000
Proceeds from LT debt are classified as financing
Sale of investments is investing
Purchase of PPE is investing
