8/18

Question 1

Vik Auto and King Clothier exchanged goods, held for sale, with equal fair values. Each will use the other’s goods to promote their own products. The retail price of the car that Vik gave up is less than the retail price of the clothes received. What profit should Vik recognize for the nonmonetary sale

Answer 1

Profit equal to the difference between the FV received and cost of the car.

Transaction seems to meet the definition of having commercial substance. Therefore you treat as if sold at FV.

Question 2

On Jan 1, yr 1 Babson leased two automobiles for executive use. The lease requires five annual payments of 13,000 with the first due Jan 1, yr 1. Babson guarantees 10,000 residual value. The implicit interest rate is 9%. The PV of the 9% are

annuity due with 5 payments 4.24
ordinary annuity with 5 payments 3.89
PV of $1 for 5 periods .65

What should Babson record as lease liability immediately after the first required payment

Answer 2

48,620

13,000 x annuity due 4.24 = 55,120
55,120 - first payment 13,000 = 42,120
add pv of residual value (10,000x.65) 6500 + 42,120 = 48,620

Annuity due as first payment is due now

Question 3

At the beginning of the current year Paxx County had 125 bal for accrued compensation absences. At the end of the year the balance was 150. Paxx paid 400 for compensated absences. What amount of compensated absences expense should Paxx report for the year?

Answer 3

425

BB 125 EB 150 payments 400

400 + 150 - 125 = 425

Formula bb + accrued exp - payments = eb

Question 4

In a transaction, our payments at a fixed interest rate in exchange for receiving payments that will fluctuate based on movements in market rates. This was aligned with our Dec 1 borrowing of 1,00,000 at an annual rate of SOFR + 3%. As of Dec we had an unrealized loss of 15,000 on this swap.

What is the type of hedge and effect

Answer 4

Cash flow hedge as the variable portion relates to interest payments (cash outflows)
Since it is a cash flow hedge the 15,000 loss will be reported in OCI

Question 5

A futures contract from March 1 of last year used to hedge the risk of change in the value of our inventory. As of the end of Dec we had an unrealized gain of 12,000 on the contract and a 12,050 unrealized loss due to a decrease in the FV of the inventory.

What is the type of hedge and effect

Answer 5

It is a fair value hedge as the contract is hedging an asset

Fair value hedges are reported in earnings

A loss of 50 would be reported in earnings.

Question 6

What is necessary to convert cash receipts to revenues reported on an accrual basis?

Answer 6

Add ending AR
Subtract beginning AR
Subtract ending unearned rev
Add beg unearned rev

Question 7

Roy city received a gift. the principal is to be invested in perpetuity with the income used to support the local library. In which fund should this gift be recorded?

Answer 7

Permanent fund

Permanent fund is used to report resources that are legally restricted.

Question 8

Special revenue funds account for

Answer 8

revenues from specific taxes or other earmarked sources that are restricted or committed to a particular activity of a government.

Question 9

Investment Trust fund are used to account for

Answer 9

external investment pools.

Question 10

Private purpose trust funds are used to account for

Answer 10

funds for the benefit of specific individuals, private organizations, or other governments that do not meet the definition of a pension or investment trust.

Question 11

Twin House reported net income of 753 for the current year. The FS reflect the following

Derp exp 150, Gain on sale of trading securities 6, Goodwill impairment 75, Decrease in AR 48, Increase in Inv 33, Decrease in trading securities 50, Increase in AFS securities 62, Increase in AP 70, Decrease in taxes payable 15, Dividends paid 200, Dividend received 27

What should Twin House report as net cash provided by operating activities?

Answer 11

1,098

Net Income 753
+Depr 150 + Goodwill impairment 75 + decrease in AR 48
- Increase in Inventory 33 + decrease in trading securities 50
+ increase in AP 70 - decrease in taxes payable 15

Gain on sale of trading securities should have been included in net income.
Dividends paid is included in financing activities
Dividends received is included in net income

Question 12

Brecon Co installed cabinets to display its merchandise in customer stores. Brecon expects to use these cabinets for five years. Brecon’s multi step income statement should include

Answer 12

One fifth of the cabinet cost in selling, general and administrative expenses.

Question 13

In preparing its cash flow statement for the year, Reve collected the following

Gain on sale of equip -6000, Proceeds rom sale of equip 10,000
Purchase of bond -180000, Amortization of bond discount 2000
Dividends declared -45000, Dividends paid -38000
Proceeds from sale of T Stock 75000

What amount should Reve report as cash provided by financing activities

Answer 13

37,000

-38,000+75,000=37,000

Financing activities are for example issuing stock, paying cash dividends, repurchasing/reselling stock, issuing bonds/LT debt, payment of principal

Question 14

Main Co. began manufacturing business last year. Main uses the dollar LIFO method to determine the value of its inventory. Main’s inventory was valued at 100 at the end of last year, using current costs, and 132 at the end of the current year. The prices for Main’s inventory during the current year were 20% higher than last year’s prices. What amount should main report as inventory on its balance sheet?

Answer 14

112

Prices were 20% higher so 132/1.2 = 110 which is the value of inventory if bought at be year prices

bb 100 to eb 110 = 10 increase in inventory.
The increase in inventory is then marked up to current year prices
10 x 1.2 = 12 ; bb 100 + LIFO layer added 12 = 112 value of inventory

Question 15

When a CPA is applying the enhancing qualitative characteristics of useful financial information, it is important for the CPA to remember that

• applying the enhancing qualitative characteristics is an iterative process that does not follow a prescribed order.
• cost is a secondary consideration
• enhancing qualitative characteristics could compensate for unfaithful representation
• each of the four enhancing qualitative characteristics should be given equal priority

Answer 15

applying the enhancing qualitative characteristics is a process that does not follow a prescribed order.

comparability, verifiability, timeliness, understandability

Question 16

Which of the following is a qualitative characteristic that enhances the usefulness of financial information?

• confirmatory value
• materiality
• neutrality
• verifiability

Answer 16

Verifiability

qualitative characteristics are verifiability, understandability, comparability, timeliness
VUCT

Question 17

A NFP should report contribution for the construction of a new building as cash flows from which of the following in the statement of cash flows

• capital financing activities
• financing activities
• investing activities
• operating activities

Answer 17

Financing activities

This is a receipt of cash with donor imposed restrictions, therefore financing.
If it was the sale of a building or purchase of a building then it would be investing

Question 18

On July 1 Balt Co. exchanged a truck for 25 shares of Ace Corp common stock. On that date the truck’s carrying amount was 2,500 and its FV was 3,000. Also, Ace’s stock was $60 per share. On Dec 31, yr 1 Ace had 250 shares of common stock outstanding and its BV per share was $50. What amount should Balt report in its Dec 31, yr 1 BS as investment in Ace, assuming the transaction had commercial substance?

Answer 18

3,000

If a nonmonetary exchange has commercial substance the transaction is accounted for using the FV of the asset surrendered or received, whichever is more evident.

The question does not give a FV of the stock so FV of truck is used.

Question 19

Barnel Corp owns and manages apartment complexes. On signing a lease, each tenant must pay first and last month’s rent and a $500 refundable security deposit. The security deposit is rarely refunded in total because $150 cleaning costs are almost always deducted. About 30% of the time there are also charges for damages to the apartment, typically $100 in cost. If a one year lease is signed for $900 per month, what amount would barnel report as refundable security deposit?

Answer 19

500

Costs are not deducted until incurred.

Question 20

Valley Village is preparing the reconciliation between the fund balance on the governmental fund balance sheet and the net position on the governmental activities column of the government wide FS. The towns records show 150 cap asset, 25 acc depr and 100 LT debt. The gov fund FS show a fund balance of 85. What was the amount of Valley Village’s governmental activities net position?

Answer 20

110

85 + 150 - 25 - 100 = 110

CANS mnemonic

+ Capital Assets - Accm Depr - Non current liab + service fund net position
+deferred inflows - accrued interest payable
=Net position from governemental activities

Question 21

East Co issued 1,000 shares of its $5 par common stock to Howe as compensation for 1,000 hours of legal services. Howe usually bills 160 per hour. On the date of issuance the stock was trading on a public exchange at $140 per share. What amount should APIC increase as a result of this transaction?

Answer 21

135,000

FMV surrendered for legal services is 140,000. Less 5,000 par is 135,000 APIC.

Billing rate is not an appropriate basis for valuation.

Question 22

Nemo Diving Products usually stores its product inventory in a special area within its manufacturing facility. Due to a recent fire, all inventory this month was stored off site at a cost of 3,000. Some inventory items are purchased from Switzerland. That inventory had an import duty of 2,000. This month unreimbursable freight charges on product sold were 4,000. Given the costs above, what amounts are chargeable to inventory verses chargeable to expenses?

Answer 22

Inventory 2,000
Expenses 3,000+4,000=7,000

The 3,000 warehousing costs are not included in inventory because they are not usual
Freight out is a selling expense

Question 23

Opto Co is a publicly traded, consolidated enterprise reporting segment information. Which of the following is a required enterprise-wide disclosure regarding external customers?

• identify transactions with a particular external customer constitute more than 10% of total revenue
• identify external customer providing 10% or more of a particular operating segment revenue
• identify external customers considered to be major by management
• information on major customers is not required in segment reporting

Answer 23

identify transactions with external customers that constitute 10% or more of total revenue.

Question 24

Statement of Net Assets Available for Benefits

In the assets section you should report

Answer 24

Cash
Investments at fair value, plus those at market price
Receivables - employer, participants, notes, other
look for participants-notes receivable info

Question 25

Statement of Net Assets Available for Benefits

What should you report for Liabilities

Answer 25

Accrued Expenses
Other Liabilities
Excess contributions payable - Take the contributions made in the year. There is a limitation imposed by the IRC. Contributions over that limit create a payable

Question 26

Statement of Changes in Net Assets Available for Benefits

Additions

Answer 26

Investment income: FV appreciation, Dividends, Interest
Interest from notes receivable -
Contributions - from employer, from participants, rollovers

Question 27

Statement of changes in Net assets Available for Benefits

Deductions

Answer 27

Benefits paid

Admin expenses

Question 28

Statement of Changes in Net Assets Available for Benefits

Transfers

Answer 28

Should be given to you.

If they provide a graph over the quarters then add up each quarter to get the total.

Question 29

Inventory rollforward

BB
Inventory purchases
Sales of goods
Inventory in Transit
Other adjustments
Valuation adjustments
EB

Answer 29

BB - should be given maybe from the prior period wp
Inventory purchases - look for inventory receiving doc. pay attention to dates/terms. only include goods ordered and received, not in transit.
Sales of goods - CoGS, might have to pay attention to terms if they give
Inventory in transit - be sure not to include inventory in transit with purchases.
Other adjustments - subtract missing inv., add found inv., other items
Valuation adjustment - write down goods which NRV is below cost = NRV - Cost = adjustment per unit x units on hand = adjustment
EB calculated per above

Question 30

A government has the following liabilities at the end of the year
General obligation bonds 1500
Compensated absences 120
Salaries payable 40

What amount should be reported in the governmental activities column of the government-wide statement of net position?

Answer 30

1660

economic resources measurement focus requires display all noncurrent liabilities and current liab.