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BAR CPA Exam > Bar Exam Deck 6 > Flashcards

Bar Exam Deck 6 Flashcards

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1
Q

What happens when you have an estimated gross loss for a construction project and revenue is recognized over time?

A

Recognize all of the estimated loss in the year that it is expected
If some loss was previously recognized then you would deduct this from the loss

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2
Q

According to COSO, which of the following provides oversight of an entity’s enterprise risk management?

A

board of directors

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3
Q

How to find the non-current debt for governmental activities for us in the government-wide financial statements?

A

Rollforward
Beginning general purpose debt
ADD
Finance lease
Less
Principal payments on general purpose debt
Amount due at signing of financing lease
ENDING: This will give you the ending balance
EXPLANATION BELOW
This was an mcq and the main call to the question was separating what would be included in governmental wide column and business like activities column

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4
Q

How to find the total consideration transferred for a business combination?

A

It is the total fair value of the consideration given
This includes the following:
Cash
Common stock
This also includes the fair value of the contingent consideration

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5
Q

What is a contingent consideration?

A

This occurs in a business combination when the buyer states a contingency that if the subsidiary has a certain amount of sales then they will receive money from the parent company

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6
Q

How to calculate midpoint price elasticity of demand?

A

(new-old)/(new+old) quantity
(new-old)/(new + old) price

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7
Q

How to calculate point price elasticity of demand

A

(new-old)/old quantity
(new-old)old price

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8
Q

Under what type of circumstance would an unappropriated (outstanding) encumbrance balance not be closed at the end of the accounting period for a governmental fund?

A

When the outstanding encumbrance balance does not lapse

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9
Q

How are cost treated in the preliminary project stage of a software package developed for internal use?

A

The costs are expensed as incurred

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10
Q

How are cost treated after the preliminary project stage of a software package developed for internal use?

A

The cost are capitalized and depreciated over the economic life of the product

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11
Q

When is a shortage created in economics?

A

When the maximum price is below the equilibrium point

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12
Q

When is a surplus created in economics?

A

When the minimum price is above the equilibrium point

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13
Q

An increase in the demand and the supply for a product will cause which of the following?

A

Draw out the supply and demand
p is on the y axis while q is on the x axis
THE EQUILIBRIUM QUANTITY WILL INCREASE
PRICE MIGHT INCREASE, DECREASE, OR STAY THE SAME

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14
Q

What are the four columns in the governmental wide statement of net position?

A

Governmental Activities
Business-type Activities
Total
Component Units

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15
Q

What are the components of the governmental funds net position?

A

NRCAU ACRONYM
Nonspendable
Restricted
Committed
Assigned
Unassigned

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16
Q

This category includes amounts that cannot be spent because they are either not in spendable form (e.g., inventories or prepaids) or legally or contractually required to be maintained intact (e.g., principal of a permanent fund).

A

nonspendable fund balance

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17
Q

These are funds that are constrained for a specific purpose by external parties, constitutional provisions, or enabling legislation.

A

restricted fund balance

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18
Q

This classification includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority.

A

committed fund balance

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19
Q

This category encompasses amounts intended to be used by the government for specific purposes but do not meet the criteria to be classified as restricted or committed.

A

assigned fund balance

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20
Q

the residual amount for the net position of governmental funds

A

unassigned fund balance

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21
Q

What are two ways to present component units in the governmental wide financial statements?

A

Discrete or Blended

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22
Q

How do you determine if a component unit is blended?

A

Governing body is the same as the primary government
services only the primary government
The primary government pays for the component unit’s debt

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23
Q

How are blended component units presented in the financial statements?

A

Combined with the data of the primary government

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24
Q

How are discrete component units presented in the financial statements?

A

Reported in a separate column in the governmental wide financial statements

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25
Q

What are the three stages for software developed for internal use?

A

Preliminary
Application Development
Post Implementation

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26
Q

In what stage can cost be capitalized for software developed for internal use?

A

Application development stage

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27
Q

When can cost be capitalized for software developed for sale?

A

once technological feasibility is established

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28
Q

What is the formula for the extended dupont ROE

A

EBIT/Revenue
* EBT/Operating Income
* Net Income/EBT

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29
Q

What is the difference between the recording of the investment amount under consolidation and equity method?

A

Consolidation: Investment is eliminated
Equity method: Investment is included

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30
Q

How do you reconcile the change in Fund Balance of Governmental Funds to Change in Net Position of Governmental Activities on the governmental-wide financial statements?

A

CPAS RIDES
Capital Outlay Expenditures: ADD
Principal payments on debt: ADD
Asset Disposal: Subtract
Source of funds (debt proceeds): Subtract

Revenue Accrual: Add
Interest Accrual: Subtract
Depreciation Expense: Subtract
Internal Service Fund Net income: Add

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31
Q

What is the effect on working capital for an aggressive collection approach?

A

A/R decreases
Cash Increases
No net effect

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32
Q

What is the effect of factoring on working capital?

A

A/R decreases
Cash increases
There are fees associated with factoring so working capital would decrease

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33
Q

the following components of the rate including the risk-free rate of return, default risk, liquidity risk, and inflation. The identified components would best be described as:

A

risk inventory

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34
Q

How to calculate the required rate of return?

A

Sum the following together
Nominal Rate of Return = Real rate of return + inflaiton premium
Interest Rate Risk
Liquidity Risk
Default Risk

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35
Q

When are bonds issued at a discount?

A

When the market rate is greater than the coupon rate

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36
Q

When is operating leverage high?

A

High percentage of fixed costs compared to variable costs

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37
Q

When is financial leverage high?

A

High percentage of debt compared to equity

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38
Q

Why do companies use operating and financial leverage?

A

To attempt to increase profits

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39
Q

How to calculate the beta coefficient?

A

(1 + fluctuation in stock)/1

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40
Q

What’s the difference between line of credit and letter of credit

A

Letters of credit are third-party guarantees of obligations incurred
Lines of credit provide a defined safety net for cash availability, but provide comparatively less assurances that cash flows would be dedicated to specific vendors.

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41
Q

When looking at a make or buy decision and some fixed costs can be eliminated, which part is relevant to the decision?

A

The part that can be eliminated should be included
The part of costs that can’t be eliminated is not included because it is incurred regardless of making or buying the product

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42
Q

are required to maintain capacity and will be incurred whether the facility is full or empty

A

fixed costs

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43
Q

What is the main difference between variable and absorption costing?

A

Fixed manufacturing overhead is treated as an inventoriable cost under absorption costing

44
Q

When calculating the materials price variance, do you use the actual quantity purchased or the actual quantity used?

A

actual quantity purchased

45
Q

How are capitalized cost for computer software to be licensed reported?

A

lower of cost or market

46
Q

What are the three things that determine whether a company is a variable interest entity?

A

Power to direct significant economic activities
Absorbs half of expected losses
absorbs half of expected gains

47
Q

This ratio indicates how efficiently a company uses its resources.

A

return on assets

48
Q

This ratio indicates how effectively a company makes use of its assets

A

asset turnover

49
Q

Under Regulation S-X, an entity’s annual financial statements filed with the SEC should include at least three of each of the following

A

Income Statement
Statement of cash flows
Statement of changes in owners’ equity

50
Q

What are the two required financial statements of a defined contribution retirement plan?

A

Statement of net assets available for benefits of the plans
Statement of changes in net assets available for benefits of the plans

51
Q

What are the governmental fund financial statements?

A

Balance Sheet
Statement of Revenues, Expenditures, and Changes in Fund Balance

52
Q

What is the journal entry for a construction project?

A

DR: Construcution in Progress (Actual Expenses for the year + recogized gross profit (loss))
DR: Construction Expense (Actual Expenses for the year)
DR/CR: Contracts Reivable (Actual Billings - Cash Received)
DR/CR: Cash (Amount paid out for expenses - cash received from collections)
CR: Progress Billings (Actual Billings for the year)
CR: Construction Revenue (Actual Expenses for the year + gross profit (loss) same as CIP)

53
Q

What is the initial journal entry for a governmental fund to record the inception of a lease?

A

DR: Capital Outlay
CR: Other Financing Sources

54
Q

What is the journal entry for a governmental fund to record payments for a lease?

A

DR: Debt service expenditure - principal
DR: Debt service expenditure - interest
DR: Cash

55
Q

How does a lessee treat a sale leaseback that is classified as an operating lease?

A

They recognize the gain(loss) on the sale immediately

56
Q

How does a lessee treat a sale leaseback that is classified as a finance lease?

A

Any gain(loss) on the sale is deferred and amortized over the lease term

57
Q

What is the initial journal entry for a failed sale leaseback?

A

DR: Cash
DR: Financial Liability
The asset remains on the lessee’s books

58
Q

When do you use forward contracts versus when do you use future contracts?

A

Futures contracts are often used to hedge specific contracts
forward contracts are used to specify general foreign currency needs

59
Q

What type of hedge can you use for to reduce transaction risk?

A

future contracts

60
Q

What type of hedge can you use to reduce economic risk?

A

forward contracts

61
Q

“What fund would record the following:
For acquisition of major capital facilities?”

A

Capital projects fund

62
Q

What fund would record the following: To create a nonexpendable trust to support a public cemetery, perpetual care?

A

Permanent fund

63
Q

the purchasing (or creation) of a foreign company as a subsidiary company

A

direct foreign investment

64
Q

What are the TWO RULES regarding R&D costs?

A

Expenses unless tangible assets have alternative future use of work is undertaken on behalf of other under a contractual agreement

65
Q

What type of business combination helps achieve better economies of scale?

A

Horizontal combination

66
Q

What is an example of a lockbox arrangement mcq calculation?

A

See what the daily credit sales are
See how much the lockbox arrangement would reduce the receivables outstanding
Multiply these two together and then multiply it by the interest rate
Subtract the annual fee of the lockbox arrangement to find the benefit(cost)

67
Q

What is the journal entry when a proprietary fund entering into an agreement as a lessee in an agreement properly accounted for as a lease other than a short-term lease and contract that transfers ownership

A

DR: ROU Asset
CR: Lease Liability

68
Q

What happens when you have an unfavorable rate variance and labor variance and you allocate this to WIP, FG, and CoGS?

A

WIP, FG, and CoGS are increased
This would increase current assets(WIP & FG) and decrease net income(COGS)

69
Q

When calculating the opportunity cost of not accepting a project, do you use the gross revenue or the contribution margin?

A

Contribution margin

70
Q

Where are Foreign currency hedges reported: FV Hedge, Cash flow hedge, Net investment hedge?

A

FV Hedge: current earnings
Cash flow hedge: OCI
Net Investment Hedge: OCI

71
Q

When a government issues bond, what would the other financing source account be credited for?

A

The bond issue price * the rate of the bonds
EXAMPLE
Bond issue price = 1,000,000
Rate = 1.01
Total Proceeds = 1,010,000

72
Q

When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of:

A

Economic entity

73
Q

How to calculate the sales value after further proccesing?

A

Sales value at split off
Add further processing cost

74
Q

What are some key metrics for the customer perspective of the balanced scorecard (3)?

A

Customer satisfaction scores
Customer retention rates
market share

75
Q

What are the two financial statement for governmental wide?

A

Statement of net position (balance sheet)
Statement of activities

76
Q

What part of the fund balance is associated with inventory?

A

non-spendable

77
Q

What part of the fund balance is associated with externally imposed constraints?

A

Restricted

78
Q

What part of the fund balance is associated with constraints imposed by the government itself?

A

committed

79
Q

What part of the fund balance is associated with intended for specific purposes but not restricted or committed?

A

Assigned

80
Q

What are the components of the statement of revenues, expenditures, and changes in fund balances for governmental funds?

A

Revenues
Expenditures
Other financing sources/uses
Special and Extraordinary items
Change in Fund Balance

81
Q

What are the three columns for the Budgetary Comparison Schedule or Statement?

A

Original Budget
Final Budget
Actual Amounts

82
Q

What fund balance category would debt service fund to be used for repaying debt fall under?

A

Restricted

83
Q

What fund balance category would capital projects funds for construction project fall under?

A

Committed

84
Q

What fund balance category would general fund amounts designated for contingency fall under?

A

assigned

85
Q

What is the first step in preparing a budget?

A

Determine the sales volume

86
Q

What is an example of coefficient of determination?

A

variation in X explains 90% of the variation in Y

87
Q

What is an example of correlation coefficient?

A

0.9 correlation between variables X and Y

88
Q

What is the best cost strategy?

A

A mix between cost leadership and differentiation

89
Q

What is the reporting sufficiency test when is comes to reportable segments?

A

Identified segments make up at least 75 percent of external revenue of the company

90
Q

The overall cost of a basket of goods and services typically consumed by households in a given time period.

A

CPI

91
Q

The overall cost of all goods and services produced in the domestic economy during a given time period.

A

GDP deflator

92
Q

The overall cost of resources (inputs) typically utilized by producers in a given time period.

A

Producer price index

93
Q

What is the relationship between price elastic, price inelastic, and price unit elastic with total revenue?

A

Price elastic: TR will decrease
Price inelastic: TR will increase
Price unit elastic: TR stays the same

94
Q

What is the direct materials price variance formula?

A

(Actual price of raw material - budgeted price of raw material) * Actual raw materials units purchased

95
Q

What is the rule for derived tax revenues and imposed non-exchange revenues for accrual?

A

Derived tax revenues: Accrual upon receipt
Imposed non-exchange revenues: Accrual when billed

96
Q

Which of the following shapes an organization’s operations and business model?

A

corporate strategy

97
Q

What are three categories that cost can fall into for developing a product?

A

research and development costs
Capitalized costs
inventoriable costs

98
Q

Is long-term financing usually more or less expensive than short-term financing?

A

Providers of long-term finance are locking away their money for a longer period of time (that is, foregoing liquidity) and expect higher compensation for deferring their consumption.

99
Q

What happens when the reporting sufficiency test threshold is not met?

A

First you calculate 75% of the external sales and revenues
Add the reportable segments and see if they meet the 75% threshold
If they don’t then you add the highest non-reportable segment until you meet the 75% threshold

100
Q

When does a company recognize revenue for the percentage of completion method?

A

over time

101
Q

When does a company recognize revenue for the completed contract method?

A

When the contract has been completed fully

102
Q

What are the journal entry differences between percentage of completion and completed contract?

A

This is the only one and it is the
DR: Construction in Progress
DR: Construction Expense
CR: Construction Revenue
Occurs each period for percentage of completion and only at the end for completed contract

103
Q

What is the way to calculate net position in governmental activities section?

A

CANS
FUND BALANCE GOVERNMENTAL FUNDS
Capital asses used in gov’t activities
Accumulated Deprecation
Non-current debt
Internal service fund net position

104
Q

The price of a stock using the perpetuity model is calculated using the formula below:

A

Perpetuity = Dividend/Required rate of return

105
Q

Donated capital assets to a governmental unit are recorded at

A

estimated fair value when received

BAR CPA Exam (13 decks)

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