BAR Exam Deck 4 Flashcards
How to determine whether a business segment is reportable?
Find the total revenue which includes unafficiliated and intercompany sales
Individual Segment Revenue/Total Revenue
If it is greater than 10% then report it
The coverage test has to be met as well which is 75% of sales to unaffiliated customers
How to determine whether a segment of an enterprise should be reported in the enterprise’s financial statements for assets/liabilities?
The segment’s assets constitute more than 10% of the combined assets of all operating
What is the key thing to remember when it comes to operating profit by segments?
It is based on the profit reported to the chief operating decision maker
How to determine whether to to disclose major customer data in the financial statements?
If sales to a single customer are greater than 10% of total sales
_________ _______ is computed as contribution margin net of controllable costs. Controllable costs represent those fixed costs that managers can impact in less than one year.
controllable margin
Employee training, Inspection expenses-preproduction, process redesign, and product redesign costs
Prevention costs
Inspection expenses-postproduction, lab maintenance, product testing
appraisal costs
Rework, Scrap, tooling changes
Internal failure costs
cost of returning goods, liability claims, warranty costs
external failure costs
Financial statemements required for a defined benefit pension plan
Statement of Net Assets Available for Benefits
Statement of Changes in Net Assets Available for Benefits
Statement of Accumulated Plan Benefits
Statement of Changes in Accumulated Plan Benefits
What type of costs do businesses use a flexible budget?
When the costs are variable
Examples: Marketing expense, direct materials
Fixed cost would not use a flexible budget because the total cost would be the same regardless of the units produced or price
What are two types of way for a business to create a budget and which one is faster?
Participative budgeting requires more people in the organizationt to participate
Authoritative budgeting is top down which is faster
What happens to the quantity of labor demanded and the quantity of labor supplied when the minimum wage increases?
Draw a demand/supply curve for this and where the price would increase
Imagine it being a horizontal line where the price would increase
This would increase the quantity of labor supplied
It would decrease the quantity of labor demanded
How do you account for stock registration fees?
Registration fees will redcue the APIC account
CR: C/S = par value * # of shares issued
CR: APIC = (Issue price - par value * # of shares issues) - registration fees
What are these types of risks related to: Purchasing power, Translation Exposure, Economic exposure, Transaction exposure
Purchasing power relates to inflation
Translation exposure relates to gains or losses on f/s based on exchange rates differences
Transaction exposure related to transactions settled in different currency
Is variable costing or absorption costing used by GAAP and what happens when you produce more than you sale?
Absorption costing
Inventoriable cost for absorption costing included fixed manufacturing overhead
When you produce more than you sale variable costing cost of sales will be higher
The reason for this is because foh is a period cost and is always included in cost of sales for variable costing
How to calculate variable overhead efficiency variance?
Budgeted variable overhead based on standard hours - budgeted variable overhead based on actual hours?
Example:
Actual # of units manufactured: 19,000
Actual Direct Labor hours: 2,100
Direct labor hours budgted per frame: 0.1
VOH cost: $2 per direct labor hour
(190000.12)-(2100*2)
What is the journal entry to record estimated revenues, appropriations control, and budgetary control for a gov’t fund at the beginning of the year?
DR: Estimated Revenues
CR: Appropriations control
CR: Budgetary control
What is the rule for when to recognize revenue for fund financial statements?
Collections during the year plus the collection within 60 days of year end
What are things that are considered expenditures for governmental fund financial statements?
Capital purchases
debt service payments
operating expenditures
What are considered other financing sources for governmental funds?
Transfer in from other funds
How to close the estimated revenues control account at year end?
DR: Appropriations control
CR: Estimated revenues control for initial amount
What is the beginning of the year journal entry: Estimated revenues: 80 Appropriation 100
DR: Estimated Revenues 80
CR Appropriations 100
DR: Budgetary Control (plug figure) 20
What is the journal entry to close out estimated revenues, appropriations control, when control exceeds revenues estimated?
DR: Appropriations control
CR: Estimated revenues
CR: Budgetary control
What are examples of derived tax revenues
personal income tax
sales tax
an agreement to convey the right of use of another entity’s nonfinancial assets for a maximum period of less than 12 months.
short term lease for GASB
a contract that conveys ownership of the underlying asset to the lessee in a financed purchase.
contract that transfers ownership for GASB
How to calculate the minimum price that is acceptable when a company is operating at full capacity
Variable cost of product
Add: Contribution margin to produce an alterative product
How to calculate the cost of savings in a year when you have CoGS and inventory turnover?
Find the current and new inventory based on the inventory turnover formula
Subtract these two values
Multiply these values by short term interest rates to find cost of savings
What is the journal entry for a purchase order of supplies for a government?
DR: Encumbrances
CR: Budgetary control
What would the journal entries for when a government purchases supplies and then receives them?
INITIAL JOURNAL ENTRY
DR: Encumbrances (estimated amount)
CR: Budgetary control
RECEIVING JOURNAL ENTRY
DR: Budgetary control original amount
CR: Encumbrances
DR: Expentitures (actual amount)
CR: Vouchers Payable
includes interfund loans and interfund services provided and used.
reciprocal interfund activity
include interfund transfers (which are displayed as either other financing sources or uses on the governmental fund financial statements or purely as transfers in proprietary fund financial statements) and interfund reimbursements (which are not shown on the face of the financial statements).
nonreciprocal transfers
represent resources whose use has been limited by external sources such as creditors (e.g., debt covenants), contributors, other governments, laws, constitutional provisions, or enabling legislation.
restricted fund balances
Encumbrance accounting is used in the ________ ____________. What are they?
Governmental funds
General Fund
Debt Service Fund
Permanent fund
Special Revenue Fund
Capital Projects fund
How to calculate the Encumbrances outstanding amount?
Total Purchase orders charged to encumbrances - (received goods and related invoices)
Interfund transfers received by a governmental-type fund should be reported in the Statement of Revenues, Expenditures, and changes in Fund balance as a (an):
Other financing source
Where is non-controlling interest reported on the consolidated balance sheet?
In the equity section but separated from the parent’s equity
What is the primary difference between the purchase method of accounting for inventory and the consumption method of accounting for inventory?
The purchase method initially records additions to inventory as expenditures
What is an example of foregoing revenues?
Property taxes
What is the journal entry when a governmental fund receives fixed assets like land, building, and equipment that they have purchased?
DR: Expenditures
CR: Vouchers payable
What is an example of a company that uses process costing?
Coco Cola because of the mass production of a single product
Would net income be higher under absorption costing or variable costing when more unit a sold than produced??
Absorption costing because we include the fixed manufacturing cost in the inventory that is not sold and does not hit the income statement yet.
What are the three budgets that the master(static) budget consist of?
Capital Expenditure Budget
Operating Budget
Financial Budget
What budgets does the operating budget consist of?
Sales Budget: Foundation of all budgets
Production Budget
Cost of Production Budget
Selling and Administrative Expense Budget
Think of this as the first part of the income statement for the operation section
What is an example of the Sales Budget?
Unit sold per quarter
Selling price per unit
Total Sales
Calculating the cash collections based on this
How to calculate the production budget?
USE THE BASE ROLLFORWARD
B: Beginning Inventory
A: Budgeted Production
S: Budgeted Sales
E: Desired ending Inventory
(S+E)-B=Budgeted Production
What are the four major types of variance analysis?
Direct Materials variance
Direct Labor Variance
Manufacturing Overhead: Variable Overhead & Fixed Overhead
Sales Price Variance & Sales Volume Variance
What is the direct materials price variance formula and who is responsible for this in the organization?
(Actual price - budgeted price) * Actual Units
The purchasing manager would want to find direct materials that are lower in cost
What is the direct materials usage variance formula and who is responsible for this in the organization?
(Actual units - budgeted units) * Budgeted Units
The production manager would want to actually use less units for direct materials
What is another name for Budget in cost accounting?
Standard
What is the formula for the direct labor rate variance and who is responsible within the organization?
(Actual Rate - Budgeted Rate) * Actual number of hours used
HR manager is responsible for the rate and they would want a lower rate
What is the formula for the Direct Labor efficiency variance and who is responsible within the organization?
(Actual hours used - budgeted hours used) * Budgeted Rate
The production manager is responsible for this variance and he would want the actual hour used to be less than the budgeted amount
How to calculate the variable overhead spending variance and who is responsible for this within the organization?
(Actual Variable Overhead rate - Budgeted Variable Overhead Rate) * Actual Quantity
The actual quantity will be the driver which could be direct labor hours or direct materials used
The production manager would want the VOH rate to be lower than the budgeted
How to calculate the variable overhead efficiency variance and who is responsible for this within the organization?
(Actual Quantity - Budeted Quantity) * Budgeted VOH Rate
The quantity will be the driver which will likely be the direct labor hours
The production manager is responsible for this variance and he would want the actual quantity to be less than the budgeted quantity
How to calculate the fixed overhead spending variance and who is responsible within the organization?
Actual fixed overhead - Budgeted Fixed Overhead
The production manager would want to the actual to be less than the budgeted
How to calculate the fixed overhead volume variance and who is responsible for this within the organization?
(Fixed overhead applicaiton rate * Actual units producted) - Budeted Fixed Overhead
Fixed overhead application rate = Budgeted Fixed Overhead/Total budgeted Production
The production manager, It is favorable when it is positive because we produced more than we expected
How to calculate the Sales Volume Variance based on contribution margin or selling price??
(Actual Sales Volume - Budgeted Sales Volume) * Budgeted contribution margin
You could also you the budgeted selling price per unit
accounts for the accumulation of resources for, and the payment of, general long-term liability principal and interest.
debt service fund
provide goods or services to the general public,
enterprise funds
provide goods or services to other departments on a cost-reimbursement basis.
internal service funds
How is interest due on bond treated for governmental funds?
Interest expenditures is not accrued and is not reported until it is actually due
How are items are not extraordinary ( both unusual and infrequent) reported in the financial statements of governmental funds?
As an expenditure
All “expenditures” from (almost) every “operating” fund are debited to an account called “___________ ________.”
expenditure control
The debt service fund which uses the modified accrual basis of accounting will accrue interest only when it is ____ ______, not at interim dates
legally due
What are two things that would be included in the capital projects fund for other financing sources for the current year?
Proceeds from debt issuance
Transfer from general fund
What is the best way to measure liquidity position of a company?
The current ratio
The five components of COSO’s Enterprise Risk Management System?
GOPRO ACRONYM
Governance and Culture
Objective-Setting and strategy
Performance
Review and Revision
Information, Communication, and Reporting (Ongoing)
Evaluates alternative strategies, Formulates business objectives, analyzes business context, defines risk appetite
Strategy and Objective setting part of ERM
Develops portfolio view, Assesses severity of risk, prioritizes risk, identifies risks, implements risk responses
Performance part of ERM (DAPII)
two or more products of significant value that are generated from a common input
Joint product, one process produces two outputs and the total cost for this process needs to be allocated
minor products of relatively small value that incidentally result from the manufacture of the main product
by-product
How do you allocate joint costs when there is no sales value at the split off point?
YOU MUST FIRST CALCULATE THE SALE VALUE AT SPLIT OFF
Sales value at split off = final selling price - separable cost after the split off
Sales value at split off * # of units to allocate the percentage of joint costs
What is the journal entry for an internal service fund to record revenues from other units within the government?
DR: Due from other funds
CR: Operating revenues control
This is similar to a for-profit entity except their journal entry would debit A/R and credit Revenue
How do you calculate the net investment in capital assets for an proprietary fund?
Book Value of Capital Assets
Less: Accumulated Depreiciation of Capital Assets
Less: Debt that is for the acquisition of capital assets
What type of revenue is shared revenues by an enterprise fund?
Non-operating revenues
How long does a capital project fund last?
The life of the construction period, usually 1-3 years
What does having a perfect hedge mean?
There is no future gain or loss
How to calculate the sales mix variance and was is the explanation behind it?
(Actual Units sold - Budgeted Units sold) * budgeted contribution margin
If it is positive than it is favorable
What is an easy way to remember the difference between a defined benefit plan and a defined contribution plan?
Defined contribution plans are similar to 401(k) and they are a lot easier to account for.
Some key attributes for a defined benefit plan that differentiate themselves from a defined contribution plan
ACTUARIAL ASSUMPTIONS
COMPLEX TO ACCOUNT FOR
CAN BE OVER OR UNDERFUND BASED ON PLAN ASSETS
How to find the equivalent unit conversion cost using the FIFO method? (PUT INTO YOUR OWN WORDS SO YOU CAN UNDERSTAND IT FOR TEST DAY)
FIRST: Find current conversion cost which is Direct Labor + Factory Overhead
SECOND: Find equivalent units for FIFO method
Units Completed during the period
Add Ending WIP * % of conversion costs
Less Beginning WIP * % of conversion costs
TOTAL CONVERSION COSTS/EQUIVALENT UNITS
What is a custodial fund?
a fund that hold money for a government until it is distributed to the legal owner or beneficiary
What would the journal entry be to record the principal payment and interest expense for a lease of a governmental fund?
DR Expenditures Control = Principal Payment + Interest Payment
CR: Cash
How to calculate the amount of non controlling interest for a parent company?
FIRST CALCULATE THE INVESTMENT AMOUNT IF THEY ACQUIRED 100% OF THE SUB
Investment amount/% acquired=Book Value of Sub
Total Book Value of sub * (1-% acquired) = non controlling interest
What are the gains or losses of fair value hedges reported in the financial statements? What are examples of fair value hedges
Always in the INCOME STATEMENT
Options
Interest rate swaps
What are the characteristics of a forward contract?
Nature: Over the counter (PRIVATELY TRADED)
Liquidity: (less liquid than future contracts)
Contract Terms: Customized
Settlement date: End of period
What are the characteristics of a future contract
Nature: Traded on organized exchange (publicly traded)
Liquidity: More liquid when compared when forwards
Contract terms: Industry standard
Settlement date: Can be settled daily
What are the gains or losses of cash flow hedges reported in the financial statements? What are examples of cash flow hedges?
THE EFFECTIVE PORTION IS ALWAYS REPORTED IN THE OTHER COMPREHENSIVE INCOME STATEMENT
Forwards
Futures
What type of derivative is when a bond that can be converted into shares if the price reaches a certain level?
embedded derivative
Have one or more underlyings and one or more notional amounts
Required no initial net investment
Have their terms requiring or permitting net settlement
Freestanding derivative
What is the difference between regulation s-k and s-x?
S-K related to nonfinancial info statement disclosures
S-X relates to the financial statements that are required
How is a change in fair value of a contingent consideration accounted for when a company accounts another?
The change is reported as either a gain or loss in the income statement
Example: A company with pay a certain amount if the company they acquires meets a certain revenue goal
The change in fair value of this contingency is the part that is reported
What is the purpose of the statement of activities for government-wide financial statements?
Operational accountability
What are the three section of the ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR)
INTRODUCTORY SECTION
BASIC FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION
STATISTICAL SECTION
What are included in the basic financial statements for a state or local government?
GOVERNMENT-WIDE FINANCIAL STATEMENTS (statement of net position, statement of activities)
FUND FINANCIAL STATEMENTS: Governmental funds, proprietary funds, Fiduciary funds
NOTES TO THE FINANCIAL STATEMENTS
What are the three criteria for a primary government?
SEPARATELY ELECTED GOVERNING BODY
LEGALLY SEPARATE
FISCALLY INDEPENDENT OF OTHER STATE AND LOCAL GOVERNMENTS
SELF acronym
If these are not met then the unit would be considered a component unit
How to determine whether a component unit is blended or discretely presented?
COMPONENT UNIT GOVERNING BODY IS THE SAME AS THE PRIMARY GOVERNMENT
COMPONENT UNIT SERVICES THE PRIMARY GOVERNMENT ONLY
TOTAL DEBT OUTSTADNIGN IS EXPECTED TO BE REPAID BY THE PRIMARY GOVERNMENT’S RESROUCES
If all of these conditions are met then the component unit is blended
What is the goal of setting standards and preparing budgets for a business?
To motivate employees to achieve the strategic goals of the organization.
What is the biggest type of risk associated with derivative contracts?
Credit Risk because the losing party will fail to perform their duty
What is the purpose of fund financial statements when it comes to accountability for a government?
FISCAL ACCOUNTABILITY
