Area 1

Question 1

There are 4 types of financial statements to be prepared for an NPO which include:

Answer 1

Statement of financial position
Statement of activities
Statement of cash flows
Statement of functional expense

Question 2

What are the fundamental charateristics of useful information?

Answer 2

Relevance and Faithful Representation

Question 3

What the the two primary components of revelance?

Answer 3

Predictive value
Confirmatory value

Question 4

What are the three components of faithful representation?

Answer 4

Completeness
Neutrality
Free from Error

Question 5

There are four enhancing characteristics for both of the fundamental characteristics, what are there?

Answer 5

Comparability
Understandability
Timeliness
Verifiability

Question 6

When making changes to the the Accounting Standards Codification, what are issued by FASB?

Answer 6

Accounting Standards Updates (ASU’s)

Question 7

What makes up comprehensive income?

Answer 7

Net income + Other comprehensive income

OCI contains: derivatives, adjustment on defined benefit plans PBO vs FV, unrealized holding gains/losses on AFS, translation adjustment from foreign currency

Question 8

What are accruals used for and when is revenue and expenses recognized under this method?

Answer 8

Accruals are used for future cash receipts and payments.
Recognize revenue or expenses when incurred regardless of when cash is received

Question 9

When are deferrals used?

Answer 9

Deferrals are used for past cash receipts and payments. Used when cash is exchanged before the revenue or expense is recognized

Question 10

What are the three fair value measurment techniques?

Answer 10

Market
Income
Cost

Question 11

What are the three levels to the fair value heirarchy for assets and liabilities?

Answer 11

Level 1: observable inputs in active markets for identical items

Level 2: observable inputs for similar items

Level 3: unobservable inputs - entity’s assumptions for determining fair value

Question 12

During a period of inflation when does a purchasing power gain/loss occur?

Answer 12

During a period of inflation, a purchasing power gain occurs if the item is a monetary liability and a purchasing power loss occurs if the item is a monetary asset

Question 13

During a period of deflation when does a purchasing power gain/loss occur?

Answer 13

During a period of deflation, a purchasing power gain occurs if the item is a moentary asset and a purchasing power loss occurs if the item is a monetary liability

Question 14

Investing activities on the SCF invlolve?

Answer 14

Long-term investments in business such as acquisition and disposal of long term assets (PP&E, intangibles, AFS), proceeds from corporate owned life insurance

Question 15

Financing activies on the SCF involve?

Answer 15

Issuing and repaying debt or equity

Question 16

When are expenses recognized under the cash basis of accounting?

Answer 16

Expenses are recognized when paid rather than incurred

Question 17

How is the cash to accrual conversion of an expense calculated?

Answer 17

Cash basis expense

Add: increase in payable and decrease in prepaid

Deduct: decrease in payable and increase in prepaid

Accrual basis expense

Question 18

What are the three forms of a resticted donation for an NPO

Answer 18

An NPO has a restricted donation when the donor imposes a limitation typically in the form of a specific purpose, use, or period

Question 19

In an NPO a donation is available for general use when:

Answer 19

The donation is without restriction and there are no limitiation imposed by the donor

Question 20

Are FX translation gains included on the income statement?

Answer 20

No, FX translation gain are not included on the income statement. Instead, are transferred to AOCI without passing through net income

Question 21

What is included in general and adminstration expenses?

Answer 21

Officer salaries, accounting and legal, insurance

Question 22

What is included in selling expenses?

Answer 22

Sales salaries and commissions, advertising, freight out

Question 23

For discontinued operations, when is income/loss and gain/loss on sale recognized?

Answer 23

For discontinued operations, operating income/loss is recognized in the period it is earned, gain on sale is recognized
in the year of the disposal, and loss on sale is recognized immediately. The recognition is net of tax.

Question 24

What is the calculation used when allocating net income/loss of a partnership to the partners?

Answer 24

partnership net income/loss - special allocations and allowances to individual partners = remaining net income/loss to be allocated

Question 25

What are the 4 steps to follow when liquidating a partnership?

Answer 25

Step 1: Sell all noncash assets
Step 2: allocate loss to partners
Step 3: pay liabilities
Step 4: distribute cash based on capital accounts

Question 26

When a new partnership is formed and the bonus approach is used, how is the capital accounts impacted for the partner who contributed less, and the partner who contribued more?

Answer 26

Under the bonus approach, when a new partnership is formed and agreed to divide initial capital equally, the unidentifiable assets for the partner who
contributed less is not impacted. Insead, the capital account is credited for the partner who contributed more as it is viewed as they paid a bonus to the other partner.

Question 27

What are the 4 steps when admitting a new partner using the bonus method?

Answer 27

Step 1: Determine the total P/S capital (book value)
Step 2: Determine the new partner’s share of total
P/S capital
Step 3: Determine amount of bonus
Step 4: Determine who receives bonus (use old
partners profit/loss ratio to allocate)

Question 28

What is the calculation of goodwill when admitting a new partner?

Answer 28

Step 1: new partner contribution / new partner %
ownership = implied value of partnership

Step 2: implied value * old partners’ % of contribution
= old partners’ share of implied value

Step 3: old partners’ share - old partners’ capital
acct balance = goodwill