Area I A. for profit business Flashcards
how should a lessee account for variable lease payments that do not depend on an index or rate?
expense as incurred
what is the appropriate action when a discrepancy is found between the consolidated financial statement amounts and the supporting intercompany transaction documentation?
investigate and correct the root cause of the discrepancy
in a non-recourse factoring arrangement, what risk does the company selling its receivables avoid?
credit risk of the receivables
when reconciling the cash balance per books with the cash balance per bank statement which of the following would typically require an adjustment to the book balance?
bank service charges
what is the impact of the net assets of not-for-profit entity when it recognizes contributed services?
an increase in net assets
when preparing an income statement from the trial balance which of the following accounts would typically be classified as an operating expense
rent expense
in a regulatory framework what title is most appropriate for the statement that summarizes revenue and expenses?
regulatory statement of operations
on April 1 year1 Richter purchased a patent with a 10-year life for 50,000 from DD Co. DD incurred costs of 35,000 developing the patent. calculate the amortization amount of patent purchased on April 1 year 1 to be amortized for the year ended December 31, year 1?
3,750 = 50,000/10 years X 9/12(April to December year1)
how should inventory valuation error of a subsidiary be corrected?
make an adjustment in the consolidation worksheet
which step in bank reconciliation is done first?
1.comparing the general ledger balance to the bank statement to identify discrepancies. 2. adjusting the general ledger balance after identifying the reasons for the differences. 3. identifying outstanding checks. 4. calculating interest earned.
lease length 10 years, leasehold improvements depreciate in 8 years
leasehold improvements are capitalized and depreciated over the term of its useful life (8 years) or the lease term (10 years) whichever is shorter.
how should plan investments be reported in a defined benefit plan’s financial statements?
at fair value
if accrued expenses were not recorded at the end of the period what adjustment is necessary?
increase the current period’s expenses and liabilities
multiple step income statement
Trial Balance Extract:
● Sales Revenue: $600,000
● Cost of Goods Sold: $300,000
● Salaries Expense (Administrative): $80,000
● Salaries Expense (Sales): $50,000
● Rent Expense (Office): $40,000
● Utilities Expense: $20,000
● Advertising Expense: $30,000
● Interest Expense: $15,000
● Interest Income: $10,000
● Gain on Sale of Investments: $25,000
● Loss from Discontinued Operations: $18,000
Tech Innovations Inc. Income Statement (Multiple-Step)
For the Year Ended December 31, 2023
● Sales Revenue: $600,000
● Less: Cost of Goods Sold: $300,000
● Gross Profit: $300,000
● Operating Expenses:
○ Salaries Expense (Administrative): $80,000
○ Salaries Expense (Sales): $50,000
○ Rent Expense: $40,000
○ Utilities Expense: $20,000
○ Advertising Expense: $30,000
○ Total Operating Expenses: $220,000
● Operating Income: $80,000
● Non-Operating Revenues:
○ Interest Income: $10,000
○ Gain on Sale of Investments: $25,000
● Non-Operating Expenses:
○ Interest Expense: $15,000
● Net Non-Operating Income: $20,000
● Net Income Before Taxes: $100,000
● Less: Loss from Discontinued Operations: $18,000
● Net Income: $82,000
single step income statement
Trial Balance Extract:
● Sales Revenue: $500,000
● Service Revenue: $100,000
● Cost of Goods Sold: $250,000
● Salaries Expense: $120,000
● Rent Expense: $30,000
● Interest Expense: $10,000
● Interest Income: $5,000
● Gain on Sale of Equipment: $8,000
● Loss from Discontinued Operations: $15,000
Step 2: Separate Operating and Non-Operating Items
● Operating Items: Sales Revenue, Service Revenue, Cost of
Goods Sold, Salaries Expense, Rent Expense.
● Non-Operating Items: Interest Expense, Interest Income, Gain on Sale of Equipment.
Title and Date the Document:
● “Gadget Corp.”
● “Income Statement”
● “For the Year Ended December 31, 2023”
List All Revenues:
● Revenues:
○ Sales Revenue: $500,000
○ Service Revenue: $100,000
● Total Revenues: $600,000
List All Expenses (Operating and Non-Operating):
● Expenses
○ Cost of Goods Sold: $250,000
○ Salaries Expense: $120,000
○ Rent Expense: $30,000
○ Interest Expense: $10,000
● Total Expenses: $410,000
Calculate Total Income from Continuing Operations:
● Income from Continuing Operations
○ Total Revenues - Total Expenses = $600,000 -$410,000 = $190,000
.Include Non-Operating Items:
● Non-Operating Items
○ Interest Income: $5,000
○ Gain on Sale of Equipment: $8,000
● Adjusted Total Income: $190,000 + $5,000 + $8,000 =
$203,000
Account for Discontinued Operations:
● Discontinued Operations:
○ Loss from Discontinued Operations: $15,000
● Final Net Income: $203,000 - $15,000 = $188,000
foreign exchange on transaction and remeasurement date before settlement
non operating unrealized gain or loss
foreign exchange after settlement date
non operating realized gain or loss
OCI items are
temporary, non-cash and volatile
items on OCI (Other Comprehensive Income)
Foreign Currency Translation Adjustments(unrealized), Unrealized Gains and Losses on Available-for-Sale (AFS) Financial Assets, Gains and Losses from Cash Flow Hedges, Remeasurements of Defined Benefit Pension Plans, Changes in the Fair Value of Financial Liabilities Designated as Fair Value through OCI.
items on OCI represent
changes in equity during a reporting period that are not the result of transactions with shareholders (whether investments by or distributions to shareholders), and are not derived from regular business operations, i.e., outside regular business activities.
OCI statements presentation formats
single-statement approach and two-statement approach
