Basic Theory and Financial Reporting Flashcards
0
Q
Accrual basis
A
Expenses are recognized when related revenues are recorded
1
Q
Accruals
A
Recognition precedes cash receipt/expenditure
2
Q
Current cost
A
The amount of cash, or equivalent, would be paid if the same item was purchased currently
3
Q
Current market value
A
The Amount of cash that would be pAid if the asset is sold
4
Q
Deferral
A
Cash receipt/expenditure precedes accrual basis
5
Q
Cost recovery method
A
No profit of any type is recognized until the cummulative receipts (principal and interest) exceed the cost of the asset sold
6
Q
When can installment method of accoutinging can be used
A
When when uncertainty of the sale price exists. Ordinary profit of sale is recorded
7
Q
Accrued liabilty
A
(Expense) that has incurred but not yet paid
8
Q
In FASB, concept of reliabilty in financial reporting is ?
A
Neutrality, not precisin, not certainty, or effectiveness
9
Q
Unerned consulting fee
A
Money already received but service has not been provdied yet
10
Q
Prepaid insurNce calculation
A
Pay attention to the date of the renewal of insurance policy and calculat the remaining months
11
Q
Deferred cost
A
A cost that has been paid in advance of its use in business and is an asset
12
Q
Replacement cost
A
A measurement base for inventories when the replacement cost has fallen below historical cost
13
Q
What are the Statements of Financial Accouting concepts intended to establish
A
The objectives and concepts for use indeveloping standards of financial accounting and reporting
14
Q
According to FASB, objectives of financial reporting for business enterprises are based on ? A. GAAP B. reporting for regulators C. Need for conservation D. Needs of users of information
A
The needs of the users of the information
15
Q
According to FASB conceptual framework, the relevance of providing information in financial statements is subject to the constraint of: A. Comparability B. cost-benefit C. Reliability D. Faithful representation
A
B. cost benefit constraint to the relevance of providing financial reports. Information is not disclosed if costs of disclosure outweighs the benefits.
Comparability is enhancing qualitative characteristic
Reliability is no longer a part of financial framewdork according to SFAC 8
Faithful representation is fundamental qualitative characteristic
16
Q
The enhancing qualitative characteritics of financial reporting are:
A. Relevance, reliability, and faithful representation
B. cost benefit and materiality
C. Comparability, verifiability, timeliness, and understandability
D. Completeness, neutrality, and freedom from error
A
C. Are characterisitcs of enhancing qualitative financial reporting. Relevance and faithful representation are fundamental characteristic of financial reporting. Reliability is not part of characteristic.
Cost benefit is constraint and materiality is threshold for reporting useful info
D is a part of faithful representation
17
Q
According to Statements of Financial Accounting concepts, neutrality is an ingredient of:
Relevance or both faithful representation
A
Faithful but not relevance. Neutrality means freedom from biased decisions. Relevance means predictive and confirmatory values
18
Q
Fasb conceptual framework, which enhancing quality relates to both relevance and faithful representation: A. Comparability B. confirmatory value C. Predictive value D. Freedom from error
A
A. B c belongs to only relevance. D belongs to faithful
19
Q
Fasb conceptual framework, process of reporting an item in financial statements of an entity: A. Allocation B. matching C. Realization D. Recognition
A
SFAC 5, recognition is the process of formally recording or incorporating an item into financial statements as an asset, liability, revenue, expense.
Sfac 6, allocation is process of assigning/distributing an amount according to a plan/formula
Matching is simultaneous recognition of revenues with expenses related directly
Realization is process of converting noncash items into money
20
Q
Sfac 5, which items cause earnings to differ from comprehensive income?
A. Unrealized loss on investments classified as available for sale securities
B. unrealizable loss on investments classified as trading securities
C. Loss on exchange of similar assets
D. Loss on exchange of dissimilar assets
A
Per SFAC 5, earnings and comprehensive income have same components - revenues, expenses, gains, and losses - but are not same since earnings have excluded gains and losses. A included in comprehensive income but excluded from earning until realized
21
Q
Under fasb sfac, comprehensive income excludes changes in equity resulting from which:
A. Loss from discontinued operations
B. prior period error correction
C. Dividends paid to stockholders
D. Unrealized loss on securities classified as available for sale
A
C. Sfac 6, comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
22
Q
Fundamental qualitative characteristic of faithful representation has components:
A. Predictive value and confirmatory value
B. comparability, consistency, and confirmatory value
C. Understandability, predictve value, and reliability
D. Completeness, neutrality, freedom from error
A
D. A belongs component of relevance.
Compa and consist are enhancing
Understandability is enhancing
23
Q
Conceptual framework, which statments conform to realization concept
A. Equipment depreciat assigned to production department and then to product unit cost
B. depreciated equipment was sold in exchange for a note receivable
C. Cash was collected in accounts receivavble
D. Product unit costs were assigned to cost of goods sold when the units were sold
A
B. realization is process of converting non cash items resources into money through sale of assets occurs at the time of sale rather than when caash is collected
24
```
What is underlying concept that supports estimating a fixed asset impairment charge?
A. Subtance over form
B. consistency
C. Matching
D. Faithful representation
```
D. Estimate of imoairment charge of fixed asset can only be faithful representation if applied the impairment rules properly, disclosed process of arriving at impairment estimate and disclosed any uncertainty.
25
Fasb conceptual framework explains both financial and physical capital maintenance concepts. Which capital maintenance concept is applied to current net income, which applied to comprehensive income
The major difference between financial and physical capital maintenance is effect of price changes on assets held and liabilities owed during a period.
Comprehensive income is "the change in equity of a business enterprise during a period from transactions and other events from non owners sources.
Financial capital concept is applied under current GAAP
The concept of physical capital maintenance measure effect of price changes not currently captured under GAAP
26
Fasb conceptual framework, entity's revenue result from?
A decrease in liability from primary operations
An increase in asset from incidental transactions
A decrease in asset from primary operations
An increase in liability from incidental transactions
Revenues are inflows of assets or settlements of liabilities, or both, during a period as a result of entityls major or primary operations
27
Fasb conceptual framework, whihc is essential characterisitc of asset?
Asset is obtained at cost
Asset provides future benefits
Asset is tangible
Claims to asset's benefits are legally enforceable
Assets have all these features but one common quality shared by all asset is "service potential" or "future economic benefit"
28
```
Fasb conceptual framework, which attribtues not be used to measure inventory?
Net realizable value
Present value of future cash flows
Historical cost
Replacement cost
```
Five attributes used to measure assets and liabilities in present practice: historical cost, current(replacement) cost, current market value, net realizable value, and present value of future cash flows.
Only 3 are used to measure inventory at lower of cost or market
29
Which of the following is not covered by sfac 7?
Determining when fresh-start measurement are appropriate
Expected cash flow approach
Interest method of amortization
Measurements at inital recognition
Sfac 7 provides a framework for using future cash flows as basic for accounting measurements at inital recognition or fresh-start measurement and for interest method of recognition
Limited to measurement issues and not to address recognition questions
30
In calculating present value in situation with range of possible outcomes all discounted at same interest rate, expected present value would be:
The minimum outcome
Maximum outcome
Most likely outcome
Sum of probability weighted present values
The expected cash flow approach uses all expectations about cash flows in developing measurement, rather than just the single most likely cash flow.
Expected present value refers to sum of probability weighted present values in a range of estimated cash flows, all discounted using the same interest rate convention
31
Which statements regarding interest methods of allocations is not true?
The term refers both to convention for periodic reporting and approaches to dealing with changes in estimated future cash flows
Interest method of reporitng use present value techniques to compute changes in carrying amount of asset or liability from one to next
Interest methods of allocation are grounded in notion of current cost
Holding gains and losses are generally excluded from allocAtion systems
Like depreciation and amortization conventions, interest methods are grounded in notions of historicak cost, not current cost
32
Which is not the objective of using present value in accounting measurments?
To capture elements that taken together would comprise a market price if one existed
To estimate fair value
To capture the value of an asset or a liability in the context of particular entitiy
To capture economic difference between sets of future cash flows
The objective of using present value in accounting measurement is to capture the economic difference between sets of future cash flows. The objective of present value when used in accounting measurement at initial recognition and fresh start measurement is to estimate fair value
Stated differently, present value should attempt to capture elements that taken together would comprise a market value
Value in use and entity specific measurements attempts to cApture vAlue of asset
33
```
Company decided to end operations and dispose of assets. Net realiable value ofa equipment below historiao cost. What is appropriate measurement basis for equipment?
Current replacement cost
Current reproduction cost
Historical cosct
Net realizable value
```
Guidance on disposal of gains or losses of disposal of component should based in estimTe of net realizable value
34
```
Which of following accounting literature is not included in fasb accounting standards codification?
Accounting research bulletins
Statements if auditing standards
Aicpa statements of position
Fasb statements
```
Fasb accounting standards codification includes financial accounting standard boards, the emerging issues task force abstracts, accounting principles board opinions, accounting research buletins, accounting intepretations, aicpa statement of position, aicpa audit and accountinng guide, practice buletin
35
```
Lin co. Bought machine for 10k nov 1st. December 30 sold to zee for 15k. Term 2% discount in 3odyas 1% 30-60 days. However, zee has the right ti return the machine if zee unable to sell hten zee obligation would be cancelled. How much for sale of machine to zee?
14,850
14,700
15000
0
```
Revenue from sale of product recognized at time of sale only iff all conditions:
Seller price is fixed or readily determinable
Buyer has paid the seller or obligated to pay seller
Buyer obligation to seller remains unchanged in event of damage
Buyer is independent from seller
Seller doesnt have any significant obligation regarding resale of product by buyer
Amount of future returns can be reasonably estimated
36
```
Royalty assignment, pay royalty for assignment of patent for 3 years, royalties paid should be reported as expense:
In period paid
In period incurred
At date royalty agreement began
At date royalty agreement expired
```
Under accrual accounting, events that change entity's financial position are recorded in period which the evengs occur
37
Clark advertising expense account bal of 146k at dec 31 year 1. Before any adjustment:
Included is 15k cost printing catalogs for sales promotional campaign in jan year 2
Radio advertisements broadcast during dec billed on jan 2, year 2. Clark paid 9k invoice on jan 11 year 2
What amount for advertising expense on dec 31 year 1:
131k
155k
140k
122k
Sales promotional campaign in jan, cost associated are expense year 2. Cost removed and recorded as prepaid exp. 9k must be accrued as expense and liability
38
Roro paid 7k2 renew insurance policy for 3 years in march 1, year 1. March 31, year 1 roro's unadjusted trail bal have bal of 300 for prepaid insurance and 7k2 for insurance exp. what amounts reported for prepaid insurance and insurance exp for months ended march 31 year 1?
New policy in force for one month, 35 months remained unexpired. Bal in prepaid insu: 7k. Insurance exp should include the cost of last 2 months of old policy and first month of new policy.
39
```
Aneen sells one and two year mail order subcriotion. Subscriptions are collected in advance and credited to sales. Analyst of sales activity revealed:
Year 1 sales: 400k
Year 2 sales: 470k
Sub expirstion:
Year 1. 12ok
Year 2. 155k. 130k
Year 3. 125k. 200k
Year 4. 140k
Indec 31, year 2 bal for unearned sub revenue should be:
455k
479k
340k
465k
```
At 12/31/y2 liability account unearned subp rev should have baal reflects all unexpired subps. Of year 1 sales, 125k expires y3 and still a liability at 12/31/y2. Totsl lisb is 125+340. The smount removed from sales and recored as liability
40
Regal sells gift certificates, redeemable for store expire one year after issuance. Regal has following info:
Unredeemed at 12/31/y1. 75k
Year 2 sales. 250k
Year 2 redemptions of prior. 25k
Year 2 redemotion of current. 175k
Exp indicates 10% gift not redeemed. Dec 31, year 2 bal, amount reported as unearned revenue:
112500
50000
125000
100000
Regal unredeem gift at12/31/y1 are 75k. During year 2, these either redeemed or expire. Year 2 250k sold. 10% is nit redeemed
41
Decker assigns patents to enteprises under various agreements. Some royaltaies received when agreements signed, in other, royalties remitted within 60 days after license year end. Data included in dec 31:
Year 1. Year 2
Royalties receivalbe. 90k. 85k
Unearned royalties. 60k. 40k
```
During year 2 decker received royalties remittance of 200k. Income statement for year ended dec 31, y2 should report roylaty income of:
225000
195000
220000
215000
```
The begining receivable bal is subtracted because that portion collected was recognized as revenue last year. Ending receivable bal is added bc amount is year 2 rev. Beginning val of unearned royalties is added bc tpamount is earend during year
42
What are current assets?
Current assets are identified as resources that are resonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business
43
How is service contract on product sold satisfied
Revenues should be recognized on a pro rata basis over the term of the contract
44
Cash basis: zelta reported sales 4mil 6 income statement ended dec 31 y2. Additional info:
12/31/y1. 12/31/y2
Accounts receiva. 1mik. 1mil3
Allowance for uncoll. (60000). (110000)
Zelta wrote off uncollectible 20k. Under cash sales y2?
4mil3
4mil9
4mil35
4mil28
Increase in receivabale means cash collected less than sales during perido, deducted from saales revenue. Writeoff represent recognized sales never be collected therefore deducted to compute collections.
45
Marr reported rental rev of 2mil210 cash basis ended nom 30 y2.
Rents receivable nov 30y2. 1mil060
Rents receivable nov30 y1. 800k
Uncol written off. 30k
Under accrual, marr report rental revenue:
2mil5
1mil98
1mil92
2mil44
1mil090 + 1mil060 +30k
46
Class corp has 60k cash pretax income. Following info:
Year2. Year1
Accounts receiv. 40k. 20k
Accounts paya. 15k. 30k
Under accrual, amoutn of income sould report?
65k
95k
25k
55k
Beginning ap is added bc slthouhg this was paid in y2, it is properly accrued as y1 expense. Ending ap is subtracted bc althouhg not paid in y2, should be accrued as y2 expense
47
White co convert accrual to cash. Both supplies inventory and office salaries payable increased. To obtaini cash basis, these increase be added or deducted .
When company operates accural, supplies are inventoried and expensed as they are uased. Under cash, supplis are expensed as they are paid for.
Under accrual, liability established resulting additional expense over amount of cash paid to employees. Under cash, no liability is accrued and unpaid salaries are not expensed
48
Before y2, droid used cash basis. As dec 31/y2 droid change to accrual. Doid cannot determine beginning bal of supplies inventory. Effect of inability to determine on accrual net income and accrual basis owner equity
Since droid properyl inventoried supplies at dec 31 its supplies exp would be properly state. Therefore, droid inability to determine y2 beginning supplies no impact on y2 retained earnings
49
```
Gant use installment method of accouting. Following info:
Installment sales. 500k
Regular sales. 300k
Cost of installment. 250k
Cost of regular sales. 150k
General expense. 50k
Collections on sales. 100k
Amount to report as deferred gross profit?
160
250
200
74k
```
Regualr sales, cost of regular sales, and general administrative expenses do not affect deferred gross profit account.
50
Astor uses installment method of revenue recognition :
Year 2. Year 1
Sales. 900k. 600k
Collections.
Year 1 sales. 100k. 200k
Year 2. 300k
```
Accounts written off
Y1 sales. 150k. 50k
Year2 sale. 50k
Gross profit. Percent. 40%. 30%
Amount reported as deferred gross profit?
225k
250k
150k
160k
```
Under installment sales method, gross profit is deferred to future periods and recognized proportionately to collections of receivable. Therefore, deferred gross computed by. Ultiplying gross profit percent by accounts receivable bal
Y2. Y1
Sales. 900k. 600k
Minus everything
Times gross percentage
220. 30
51
Luge began operations jan 2 y1. Uses installment sales method of accounting. Info:
Installemnt account receivable dec 31 y2. 800k
Deferred gross profit. Dec 31 y2. 560k
Gross profit on sales. 40%
Cash collections and realized gross profit on sales?
Determine cash collectionns first compute y2 installment sales dividing deferred gross profit by gross profit percentage. Installment account receivable is subtracted to determine cash collections. Realized gross profit is computed by multiplyingw cash collection by gross profit percentage.
52
Doce co installment sale began jan 1 y1. Following info:
Y1. Y2
Sales. 1mil. 2mil
Gross profit realized
Onsales. Ade in.
Y1. 150k. 90k
Y2. 200k
Gross profit percen. 30%. 40%
Amount of installment accounts receivable should report
Cash collected y1 sales 150k+90k / 30%. Y2 sales 200k / 40. Installment account receivable is computed by subtracting cash collections from original sales amount
53
```
Dec 31 y1 mill sold construction to drew for 1mil8. Equipment carrying amount of 1mil2. Drew paid 300k on dec 31 y1, signed 1mil5 note 10% interest payable 5 anuual 300k. Dec 31 y2. Drew paid 300k and 150k interest. Year ended dec 31 y2 revenue from construction sales and financing ?
250k
120k
100k
150k
```
Gross percentage on sale 600/1mil8. Since 300k collected in y2, gross profit of 100k is realized. Total revenue 100k +150k
54
Financial statement purposes, installment method of accounting be used if:
Installment are due diferent years
Ultimate amount collectible is indeterminate
Collection period extends over more than 12 months
Percetnage of comoletion method in inappropriate
Profit on sale in ordinary course of business is considered to be realized at the time of sale unless it is uncertain whether the sale price is collected. Us concluded that use if installment method of accounting is not acceptable unless this uncertainty exists
55
Income recognized using installment method of accounting equals cash colelcted multiplied by:
Gross profit percentage
Gross profit percentage adjusted for expected uncollectible accounts
Net operating profit percentage
Net operating profit percentage adjusted for expected uncollectible accounts
Gross profit percentage only
56
It is proper to rcognize revenue prior to sale of merchandise when:
Revenue be reportd as an installment sale
Revenue be reported under cost recovery method
Installemnt, revenue recognized after sale, in proportion to cash collected.
Cost recovery, revenue recognized after sale, cummulative receitos exceed cost of asset sold
57
Sale of real estate from ryan to sud dec 31 y1:
Carrying amount. 2mil
Sale price:
Cash. 300k
Purchase money. 2mil7.
Mortgage payable in 9 annual 300k dec 31 y2. Int 10%. Dec 31 y2 installment paid with interest. Ryan use cost recovery method to accouunt for sale. Amount of income should recognize in y 2?
370k
0
570k
270k
Under cost recovery no profit is recognized until cummulative receipts exceed cost of asset sold. Entire prifit 1mil and y2 interst 270k deferred until cash collected exceed 2mil
58
```
Dec 31 y1 rice authorized graf to operate franchise initial fee of 150k. 60k received 3 additional annual 30k each dec 31. Present value of 3 annual payments discounted is 72k. Nonrefundable represents fair measure of service performed. Collectibility of note is certain. Dec 31 y1, unearned franchise fee:
90k
72k
132k
100k
```
Present value of payments recorded as unearned franchise fees
59
In which examples of real estate would seller not transfer usual risks and rewards of ownership?
Seller required to suppoer opearions of buyer and be reimbursed on cost plus 5% basis
Seller guarantees return of buyer's investment
Buyer can compel seller to repurchase property
2 and 3
60
```
Esker real estate transaction. Jan 1 y1, esker consummated a sale of property to kame. Amount of profit is determinable and esker not obligated to perform additional activities to earn profit. Kame initial and continuing investments adequate to demonstrate commitment to pay for property. However, esker receivable maybe subject to future subordination. Esker should account for sale using:
Cost recovery
Reduced cost recovery
Full accrual
Deposit method
```
Deposit method used when:
Until cosummated, all activites have been performed
If buyer intitial and continuing investments not adequate to demonstrate commitement to pay and seller not reasonably assured of receovering cost of property if buyer defaults
Reduced orofit method used when:
Intial invesetment is adequate to demonstrate commitment to pay but continuing investment not
61
Milestone method of accounting may be used to recognied revenue for
Long term construction contracts
Franchise arrangements
Research and development arrangements
Multiple deliverable products or services
Milestone method of accounting may be used to recognize revenue for research and development arrangements.
62
Milestone method of revenue recogniztion provides that if a milestone is achieved, what amount of revenue is recognized?
A provisions rata share of revenue vased upon percentage deliverd to date
Percentage of total revenue base don the separate units deliverd
Revenue is recognized up to amount of cash collected
Contingent revenue is recognized in its entirety
Contingent revenue may be recognized in its entirety in period the milesone is achieved
63
Which of organizations responsible for stpetting international financial reporting standards?
International accounting standards committee
International accounting standards board
Fianacial accounting standard board
Financial accounting committee
International accounting standards board. IASB
64
Iasb framework for preparation and presentaition of financial statemnts, fundameptal qualitative characteristic of relevance includes:
Comparability and timelieness
Predictive value and confirmatory value
Predictive value and feedback value
Verifiability, neutrality and representational faithfulness
Feedback value is not characterisc of relevance
Verifi, neutraility, ... Are characteriscs of reliability
Compa and timli are enhancing characterictics
65
```
Iasb framework, financial statement element defined as increase in economic benefits during accounting period inform of inflows or enhancements of assets or decrease of liabilities result i. Increases in equity is:
Profits
Gains
Icome
Revenue
```
Iasb framework has five elements: asset, liability, equity, income, and expense.
66
Iasb framework, two creteria required for incorporating items into income statement or statement of financial position are:
Meets definition of relevance and faithful representation
Meets requirements of comparability and consistent y
Meets definiton of element and can be measrpured reliably
Sastisfies criteria of captial maintenance
Ifrs requires item recognized in financial statements meet definition of an element and can be measured reliably
67
```
If outocome of rendering services cannot be estimated reliably, ifrs requires use of which revenue recognitioin method?
Installment method
Cost recovery method
Completed contract method
Percentage of completion method
```
Percentage of completion method is used whe reliable estimates can be made
Completed contract method is not permissible udner ifrs
Installment method is revenue recognition used under us gaap
68
Upon first time adoption of ifrs, entity may elect to use fair value asa deemed cost for:
Intangible assets for which ther is not active market
Any individual item of porperty, plant, equipment
Financial liabilities that are not held for trading
Biologibal assets related to agricultural activity for which there is no active market
Entity may use fair value as deemed cost for any individual item of property pal t and equipment
69
Under ifrs, which of following frist step in hierarchy of guidance to management refers, when selecting accounting policies
Apply standard from ifrs if is specially relates to transaction, other event or confition
Apply the requirements in ifrs dealing wiht similar and related issues
Consider the applicability of definitions, recogniztion crietira, and measurement concepts in iasb framwork
Consider the most recent pronouncements of other standard setting bodies to the extent they do not conflict with ifrs or iasb framework
Highest level in hiereachy is an ifrs standard applicable to the transaction
70
```
On july 1, y2 company adopted ifrs. Company first ifrs reporting period is as of and for the yea ended dec 31 y2. Company will present one year of comparative information. What is company date if transtition ot ifrs?
Dec 31 y2
Jan 1 y1
Jan 1 y2
July 1 y2
```
"Date of transtion to ifrs" is defined as begining of the earliest period for which an entity presents full conprative information under ifrs
71
How should first timer adopt of ifrs recognize adjustments required ti oresent its oppening ifrs statement of financial position?
Current adjustments should be recognized inprofit or loss and noncurrent adjustments dhould be recognized in retained reanings
All of adjustments should be recognized directlyi retained earnings or in another catoegry of equity
All of adjustments should be recognized inprofit or loss
Adjusmtnets that are capital in nature should be recognized in retained earnings and adjustments that are revenue in nattire should be recognized in profits or loss
Any adjustments rewuired to present opening balances of statment of financial position should be recognized deirectly in retained earnings or if appropriate in another category of equity
72
Interest rate
Always based on a year
73
Loeb corp borrows from bank at 12%. Repay loans on scheduled maturity date:
11/1/y1. 5k. 10/31/y2. 1year
2/1/y2. 15k. 7/31/y2. 6months
5/1/y2. 8k. 1/31/y3. 9months
Loeb records interest exp when loans repaid. Int exp recorded 1k5. If no coqrection what amount understated?
640
720
540
620
5k *12%*10/12
15k*12%*6/12
8k*12%*8/12
- 1k5
74
```
During y3, paul company discoverd ending inven incorrect by amount:
Y1. 60k understaed
Y2. 75k overstaed
Paul uses priodic inventory system. Prior to adjustment, paul retained earnings jan 1 y3 would be:
75k overstated
135k overstaed
15k overstated
Correct
```
Error in understating y 1 ending invento would be self corrected by 1/1/y3. Error in overstating y2 ending inven would not be corrected
75
```
Tack inc reported retained earnings balof 150k dec 31 y1. June y2, tack discovered merchandise 40k has not been included in y1 statement. 30% tax rate. Amount? Report as adjusted beginning retained earnings in statement at dec 31 y2
178k
190k
150k
122k
```
Correction of error is treated as prior perid adjustment, recored in year error was discovered, and reported as adjustment to beginning bal of retained earnings. Adjustment id reported net of related tax effect. 49k - 30%*40k
76
Lore co changed from cash basis of acouting to accrual basis of accounting during y2. Cummulative efefct of change should be reported in lore y2 financial statement as:
Component of income before extraordinary item
Component of income adter extraordinary item
Prior perriod adjustment resulting from correction of error
Prior period adjustment resulting from change in accounting principle
Change in accounting principle is change from one generally accepted principle to another generally accepted principle. A correction of error is correction of mathematical mistake, a mistake in application of accounting principle, an oversight or misue of existing facts, or chnage from an unaccoetable principle to generally accepted one
77
```
Bren co begining inventory jan 1 y1 understated by 26k, ending inventory over stated by 52k. As a result, cost og good sold y1:
Understaed 78k
Overstated 78k
Understaed 26k
Overstated 26k
```
Beginning inventory starting point for cgs computation so have direct effect on cgs. Understatement of bi causes understatment of goods available for sale. Ending inventoru is subetraed in cgs computation, ei have inverse effect on cgs. Overstaement of ei means too much subtracted in cgs computation.
78
```
Jan 2 y2, air inc agreed ti Pay president 300k deferred compensation arrangemnt. Air should have recored this exp but did not do sol air reported income tax exp would be 70k lower if it has properlty accrued deferred. In dec 31 y2 air should adjust beginning bal of its retained earnings by:
300k credit
230k credit
370k debit
230k debit
```
Failure to record 300k defrered compensation exp in y1 is considered an error. Profession requires that correction of eror be treated as prior period adjustment. Thus, reqquirement is to determine the retroactive adjustment that should be made to beginning bala of retained earnigns for y 2. Net admust would be debit for 230k
79
End ipof y1, riztcar failed to accrue saleas commision earned y1 but paid in y2. Error was not repeated in y2. What effect of this error on y1 ending worlikgn caoital and y2 ending epretained earnings bala?
Y1 ending working caoital. Y2 ending retained earnings
Overstaed Overstated
No effect. No effect
Ovearstaed. No effect
No. No
Y1 ending working caoital overstated due to ritzcar failure to record entry. Since eror was not repeated end of y2, income impact of y1 self ,corrected during y2
80
Dec 31 y1, special insruance costs were incurred unoaid, but not recorded. If these insurance costs were related to particular job order work in process that not completed during period, what effect of ommision on during dec 31 y1:
Accrued liabilities. Retained earnings
No effect. No effect
No effect. Over stated
Understaed. Overstaed
Understaed. No effecet
Sccrued kaubulies is accured when obligation to oay ira perform services has been incurred so understaed bcoz special insurance costs wre not recored, however, no effect on retained eranings bcoz costs reltae to workin orocess, and work in orocess does not affect net income currently.
81
klaus has 580k in inventory, based on physical count dec 31 y1. inventory priced at cost. in feb y2, determined inventory cost was overstated by 50k. indicate the effects of inventory overstatement in y1 and y 2 on inventory on balance sheet, costs of goods sold, net income, retained earnings
y1: over, under, over, over
y2: ok, over, under, ok
82
A change in depreciation method is treated as an error when adjusting the financial statements for the current year. True or False
Flase. A change in depreciation method is treated as accumulative effect of change in accounting principle
83
on Jan 1, y1, Warren Co purchased 600k machine 5 year useful life no saveage, machine was depreciated accelerated. machine carrying amount 240k by dec 31 y2. 1.1.y3 warren change to straight line. income tax rate is 30%.
in y3, what amount should report as cummulative effect of the change?
84k
120k
0
36k
what amount should report as deferred income tax liability ?
120k
36k
72k
0
0 and 0. because a change in depreciation method is no longer given cummulative effect treament on income statement
84
the effects of a change in accounting principle should be recorded on prospective basis when the change is from :
completed contract method of accounting for long term construction type contracts to percentage of completion
presentation of statements of individuals companies to their inclusio in consolidated statements
straightline method of depreciation for previously recorded assets to double declinidn balance method
cash basis of accounting for vacation pay to accrual basis
change in reportin genetity requries retrospective application to earliest uear if practicable.
change in method of accounting for long term contracts requires retrospective application to the earliest year presented if applicable
85
when a company changes from straightline method of depreciation for previously recorded assets to double declinging balance method, which of the following should be used?
cummulative effects of change in accounting principle or both retrospective application
the change is reported on a prospective basis in the current year and future years. Therefore, it does not receive cummulative effect treatment or retrospetive treatement
86
During y3, Orca Corp decided to change from FIFO method of inventory valuation to weighted average method. Inventory balances under each method were as follows:
FIFO Weighted average
Jan 1, y3 71k 77k
dec31, y3 79k 83k
in y3 financial statement, what amout should report as gain or loss on cummulative effect of this accounting changes?
4k
4k2
2k8
0
A change in inventory method no longer receives cummulative effect treament on income statement. Instead, the accounting change is given retrospective application to earliest
87
jan 1 y3, Roem coep changes inventory method from FIFO to LIFO for both financial and income tax repoting purposes. Change resulted in 500k increase in jan 1 y3. retrospective application would result in:
decrease in ending inventory in y3 balance sheet
decrease in net income in y2
gain from cummulative effect of change on income statement y3
increase in ending inventory in y2 balance sheet
Retrospective application requires applying the new principle to the earliest period presented if applicable. Because y3 begining inventory is previous year ending inventory, new principle can be applied to y2 financial statements. result in increase in ending balance for y2, increase in begining inventory and lower net income for y3
88
which of the following receive treatment as cumulative effect on accounting change on income statement?
LIFO to weitghted avereage FIFO to wa
Yes Yes
Yes NO
NO No
No Yes
A change in inventory method is given retrospective applicatino to the earliest period presented if applicable
89
Change in depreciation method
= Change in estimate. The change is reported on prospective basis for current year and future period
90
Change in inventory method
Retrospective application which require changes to the earliest period. INclude cumulative effect of a change in accounting principle
91
```
Which of the following is considered direct effect of a change in accounting principle?
Profit sharing
Royalty payments
Deferred taxes
None of the above
```
Deferred taxes is direct effect from change in accounting principle and its effect should be recoreded in earliest period presented. Profit sharing and royalty payments are indirect effects and should be reported in period of change
92
```
On jan 1, y1. Taft purchased patent for 714k. Patent is amortized over remainign legal 15 years expiring jan 1, y16. During y4, Taft determined that economic benefits of patent would not last longer than 10 years. what amount should be reported in balance sheet for patent, net of accumulated amortization, at dec 31, y4?
504k
523,600
428,400
489,600
```
This situation is change in accounting estimate and should be accounted for currently and prospectively. from 1/1/y1 to 12/31/y3, patent amortization recoreded using 15 years. Yearly amortization was 47,600(714k/15), accumulated amortization at 12/31/y3 was 142,800 (47,6 *3) and book value of patent 12/31/y3 was 571,200 (714k - 142,800). Begining in y4, book value amortized over remaining 7 years (10-3). Therefore, y4 amortization is 81,600 (571,200 /7 ) and 12/31/y4 book value is 489,600 (571,200 - 81,600)
93
for y1 , Pac Co estimated 2y equipment warranty cost based 100 per unit sold. expereince during y2 estimated that warranty should be 110 per unit sold. THe effect of thi schange 10 difference should be reported:
as correction of error requireing y1 financial statement ot restated
as accounting change require y1 fiancial statement restarted
in y2 income from continuing opertaions
as accounting change, net of tax, below y2 income from continuing operations
Change in estimate should be acocounted for in period of change as a component of income from continuing operations
94
Change in reporting entity
Accounting change that should be reported restropectively
95
IFRS requires changes in accounting principle to be reported
ON a restropective basis
96
Change in estimate
employ the current and prospective approach by:
a. reporting current and future financial statement using the new estimate
b. presenting prior period financial statement as previously reporred
c not making adjustment to current period opening balances for purposes of catch up and not making pro forma presentation
97
Change in entity
employ retroactive approach:
a. restating financial statements of all prior period presented
b. disclosing in the year of change the effect on net income and EPS data for all prior period presented
98
In Baer Food Co. Year 1 single step income statement, section title "Revenues" consisted of the following:
Net sales revenue 187k
results from discontinued operations
loss from discontinued 16k4
less tax benefit 4k (12k4)
interest revenue 10k2
gain of sale of equipemtn 4k7
extraordinary gain 1k5
in revenue section of y1 income statement, Baer Food should have reported total revenues of
215400
216300
201900
203700
Baer Food y1 revenue should incluide net sale revenue (187K) interest revenue (10k2) and gain of sale of equipment (4k7) for a total of 201900. discontinued opertaion (loss of 12k4) and extraordinary gain (1k5) are both special items that shoudl be reported as seprate components of income, after income from continuing opertaions.
99
Vane Co trial balance of income statement accounts for the y ended dec 31, y2 include the following:
debit credit
sales 575k
cost of sales 240k
administrative exp 70k
loss of sale of equip 10k
sales commision 50k
interest revenue 25k
freightout 15k
loss on early retirement 20k
uncollectible acct exp 15k
totals 420k 600k
```
finished goods inventory:
jan 1 y2, 400k
dec 31, y2 360k
vane income tax rate 30%
what amount should vane reort as cost of goods manufactured?
280k
200k
215k
295k
```
```
to directly compute cost of goods manufactured (CGM) formula is:
begining work in process
+ direct materials
+ direct labor
+ factory overhead
- ending work in process
= cost of goods manufactured
```
however, can be calcualted indirectly, using cost of sale3s formula:
begining finished goods 400k
+ cost of goods manufac +CGM
- ending finished goods -360k
= cost of sales 240k
100
Vane Co trial balance of income statement accounts for the y ended dec 31, y2 include the following:
debit credit
sales 575k
cost of sales 240k
administrative exp 70k
loss of sale of equip 10k
sales commision 50k
interest revenue 25k
freightout 15k
loss on early retirement 20k
uncollectible acct exp 15k
totals 420k 600k
```
finished goods inventory:
jan 1 y2, 400k
dec 31, y2 360k
vane income tax rate 30%
what amount should vane report as income after income taxes from continuing opertaions?
140k
149k
129k
126k
```
all of revenues, losses, gains, given in this problem are components of income from continuing operations.
101
Brock Corp reports operating expenses in 2 categories: (1) selling and (2) general and administrative. The adjusted trial balance at Dec 31 y1 included the folloiwng expense and loss accounts:
accounting and legal fees 120k
advertising 150k
freight out 80k
interest 70k
loss on sale of long term invenst 30k
officers'salaries 225k
rent for office space 220k
salaries and commisions 140k
one half of rented premise is occupied by the sale department
Brock total selling expo for y1:
400
480
360
370
advertising (150k) and salaries and commisions (140k) are clearly sellings exp. as is the rent occupied by sale department. additionally, freightout
102
Which of the foloowing should be included in general and administrative expenses?
interest advertising
yes yes
no no
yes no
no yes
interest exp is generally considered a non opertaing item and is therefore included in other expenses and losse. operting expense are divided into selling expenses and general administrative expeses. Since advertising exp is directly related to sale of the company's products, it is inculded in selling exp
103
Kent Co incurred foloowing infrequent losses during y1:
300 loss incurred on disposal of one of 3 dissimialr factories
major currency devaluation casuesd 120 exhcange loss on amount by foreign customer
inventory valued at 190 made worthless by competitor unexpected product innovation
in y1, what amount should kent report as losses not considered extraordinary?
490
610
310
420
disposal of plantsw asets, foreign current losses, inventory losses are not considered undusal in nature. Items that qualify as extraordinary items include some casualties, exproprations, prohiniytiond under a new law.
104
Ocean corp comprehensive income insuarnce allows asstes to be replaced at current value. Policy has 50k deductible clause. one of warehouse destroyued during storm. such storms occurs every 4 years. ocean incurred 20k of costs in dismatling warehouse and plans to replace it. following data relate to warehouse:
current carrying amount 300k
replacement cost 1,100k
what amount of gain should Ocean report as separate component of income before extraordinary items?
740
780
0
1030000
1100 - 50 - 300 - 20
105
Purl Corp income statment for y ended dec 31 y1 show the following:
income before income tax and extraordinary item 900k
gain on life insurance - included in 100k
extraordinary item 300k
Purl tax rate for y1 is 40%. How much should be reported as provision for income tax in Purl y1 income statement?
320
360
240
200
in this situation, provision for income tax (income tax exp) be amount of income tax liabilit to government without including extraordinary loss. amount determined by applying 40% tax rate to pretax accounting income before extraordinary items adjusted for any permanent differences. Accounting income before taxes is 900k. A gain on life insurance coverage is permanent deifference because it is included in accounting imcoe but will never be included in taxable income. Tax savings from extraordinary loss will not affect provision for incomes taxes bcoz extraodinary item msut be repored together with its tax effect (extraordinary loss of 180k, net of tax)
106
on jan 1 y1, Brencon Co installed cabinets to display its merchandisein customers store, Brecon expects to use these cabinets for 5 years. brecon y1 multistep income statement should include:
all of cabinets cost in cost of goods sold
all of cabinets cost in selling, general, and administrative exp
one fifth of cabinets costs in cost of goods sold
one fifth of cabinet cost in selling, general, and administrative exp
in y1, would report 1-5 cabinet costs as depreciation exp in selling, general, and administratrive exp. 4/5 would remain capitalized as fixed assets at end of y1.
107
a material loss should be presented separately as a component of income from continuing operations when it is:
unusal in nature and infrequent in occurence
not unsual in nature but infreeuqnet in occurence
an extraordinary item
a discontinued component of business
a material gain or loss that is unsual in nature or infrequent in occurence, but not both, should be presented as a separate component of income or loss from continuing operations. both discontiuned operations and extraordinary items are reported separately after income from continuing operations
108
An extraordinary item should be reported separately on the income statement as component of income:
net of income taxes before discontinued operations of a business
yes yes
yes no
no no
no yes
extraordinary items are reported net of income taxes as a separate component of income after discontinued operations
109
a transaction that is nunusual in nature and infreuqent in occurence should be reported separately as a component of income
before cumulative effect of accounting changes and after discontinued operations
after cumulative effect and before discontinued oepartions
after cumulative effect and after discontinued opeartions
before cumulative effect and before disconinuted operations
reported after discontinuewd opeations, before cumulative effect of accounting changes
110
what is the purpose of reporting comprehensive income?
to combine income from continuing opertaios with income from discontinued operations and extraordinary items
to replace net income with better measure
to report measure of overall enterprise performance
the purpose of reporting comprehensive income is to report a measure of overall enterprise performance by displaying all changes in equity of an enterpise that result from recognized transactions and otehr economic envents of the period other than transactions with owners in their capacity as owners.
111
```
during y1, the "other revenues and gains" section of TOtman co Statement of Earnings nad Comprehensive INcome contains 5k in interest revenue, 15k equity in Harpo earnings, and 25k gain on sale of AFS securities. assuming the gain of securities increase the current portion of income tax exp by 10k. determine the amount of Totma reclassifiation adjustment ot other comprehensive income:
35k
5k
15k
2k5
```
once unrealized items recorded and reported in current or prior period are recognized as realized and reported in netincome, it is necessary to reverse themn out of other comprehensive income. The reclassification adjustment is to avoid double counting. the reclassification adjustment in this situation is 15k. 25k gain net of 10k tax
112
accumulated other compreshensive income should be reported on a balance hset as a component of :
retained earings additional paid in capital
yes yes
no no
no yes
yes no
the accumulated bal of other comprehensive income shuld be reported as a component of equity, separete from retained earnings and addtional paid in capital
113
```
company buys ten shares of securities at 2k each on dec 31 y1. securities classified as AFS. the fair value of securitiers increased to 2500 on dec 31 y2 and 2750 on dec 31 y3. on dec 31 y3, company sell securities. assume no dividend and tax rate 30%. what is the maount of reclassification adjustment to other comprehensive income on dec 31 y3?
7k5
(7k5)
5250
(5250)
```
(5250) to avoid double counting when reclasification adjustment
114
assume a company does not elect to use fair value option for reporting financial assets and liabilities. which of the following is not classified as other comprehensive income?
none of the above
decrease in fair value of HTM securities
subsequent decreases of fair value of AFS securities that have been previousl written down as imparited
adjustment to pension liability to record funded status of the plan
if fair value option is not elected, HTM securities are reported at amotized costs. any decrease or incirease in fair value are reported neither in net income nor as part of other comprehensive income.
115
the following trial balance o Mint Corp at dec 31 y1 has been adjusted except for income tax exp:
dr cr
cash 600k
acct receive, net 3mil5
cost in excess 1mil6
billing in excess 700k
prepaid taxes 450k
p,p,e 1mil480
note payable, noncurrent 1mil620
common stock 750k
additional paid in 2mil
retained earnings - unappri 900k
retained ea - restricted for nto 160k
earning from long term contac 6mil680
costs and exp 5mil180
other financial data for yea ended dec 31 y1 are:
Mint use percentage of completing method to account for longterm construction contracts. all receivable are collectible within 12 months
during y1, estimated tax payments of 450k were charged to prepaid taxes. Mint not recoreded income tax exp. Mint tax rate 30%
In Mint dec 31, y1 bala sheet, what amount reported as
total retained earnings?
2mil4
2mil560
2mil110
1mil950
total retained earnings includ3es both unappropriated retained earnings and restricted retained earnings. therefore, before closing entries, total retained earnings is 900+160. earnings 6mil680 less cost and exp 5mil180 result in pretax income of 1mil5
an adjustment is needed to debit income tax expa and credit prepaid taxes for 450k. after adjustment, net income is 6mil680 - 5mnil180 -450. after closing entries, total retained earnings is 2mil110
116
```
Mirr Inc was incorporated on Jan 1, y1 with proceeds from issuance of 750k in stock and borrowed funds of 110k. during 1st year of operations, revenues from sales and consulting amounted to 82k, and opertaing costs and exp totaled 64k. on dec 15, Mirr declatred 3k cash dividence, payable to stockhoder on jan 15, y2. no additional activities affected owners equity in y1. Mirr's liabitiles increased to 120k by dec 31 y1. On Mirr's dec 31 y1 balance sheet, total assets should be reported at
878k
875k
882k
885k
```
mirr began operations on 1/1/y1 with following balance sheet elements:
assets = liabilities + owners equity
860k = 110k + 750k
during y1, liabilities increased to 120k, and owners equity increased to 765k [750 + 18k]
therefore assets = 120 + 765
885
117
The following changes in Vel Corp account balances occured during y1:
increases
assets 89k
liabilities 27k
captial stoc 60k
additional paid in 6k
except for 13k divident payment and y's earnigs, there wer not changes in retained earnings for y1. What was Vel's net income for y1?
13k
17k
9k
4k
the requirement is to determine net income for y1 by analuzing changes in balance sheet. aasets - liabilities = stockholder equity. 89 - 27 = 62. stockholder equity is consisted of capital stock, additional paid in capital, and retained earnings. because increase in the other 2 are given 66 the retained earnings must decrease by 4k. if 13k dividence are paid which reduce retained earnings, net income must increase by 9 to compensate for 4k minus.
118
when preparing a draft of its y1 blance sheet, Mont Inc reported net assets totaling 875k. included in asset section of balance sheet were folooiwng:
treasure stock at cost on dec 31 24k
idle machinery 11k2
cash surrender value of life insura 13k7
allowance for decline in market value 8k4
at what amount should Mont net asset be reported in dec 31 y1 balahce sheet?
842600
851000
834500
850100
idle machinery and cash surrender value are both assets. allowance for decline in market value is contra asset. Treasury stock is a contra equity accoutn must be exclueded from asset
-24k
119
```
in analyzing company financial statements, which fiancial statement would a potential investor primarly use to assess the compayn's liquitdity and financial flexibility?
income statement
balance sheet
statement of cash flow
statement of retained earnings
```
although statement of cash flow provides information about liquidity, solvency, and financial flexiblity, a potential investor would primarily use balance sheet to assess liquidit y and financila flexibility. the balance sheet heklds users analyze company ability to use current assets to apy current liabilities and company ability to alter the amounts and timing of future cash flows to adapt to unxepected needs or to take advantage of opportunities.
120
during y1, jones company engagein the following transactions:
salary exp to key employees who are also owners 100k
sales to affilitaed enterprises 250k
which of the 2 transactions would be disclosed as related party transactions in Jones y1 fiancial statements?
100k
250k
both
neitehr
financial statement must include disclosure of material transactions between related parties. compensation arrangements in the ordinart course f busines however are exlcuded from this disclosure requirement.
121
Dean Co acquited 100% of Morey Corp prior to y2. during y2, individual companies included in their fiancial statements the following:
Dean Morey
officiers salaries 75k 50k
officers exp 20k 10k
loans to officers 125k 50k
intercompany sales 150k
what amount should be reported as related parties disclosures in notes to Dean ;sy2 consoliadated fiancial statements?
175k
330k
155k
150k
disclosure of material transactions between realited parties is required except for (1) compensation agrreements, exp allowances, and other similar items in the ordinary course of business, and (2) transactions which are eliminated in the preparation of consolidated or combined fiancial statements. The officers salaries and officers exp fall into category (1) while intercompany sales fall into category (2). Therefore, only the loans to officers (125k +50k) are reported as related party disclosures.
122
financial statements shall include disclosure of material transactions between related parties except
a. company agrrement to act as surety for a loan to its chief executive officer
b. sales of inventory by a subsidiary to its parent
c. expe allowance for executives which exceed normal busines practice
d nonmonetary exchanges by affiliates
sales of inventory between subsidiary and parent are elimiated in preparing consolidated financial staements
123
Dex Co entered into joint venture with affiliate to secure access to additional inverntory. which of the following is required to be discloded about related party transactiosn?
amount due to affiliate at balance sheet date
dollar amount of purchases during the y
disclosures of materical transactions shall include (1) nature of relationship (2) description of transactions (3) dollar amounts of transactions for each income statement period and (4) amount due to/from related parties, including terms and manner of settmelemnt
124
swift Corp prepares financial statements for its fiscal y ended dec 31, y1. Swift estimtates that its product warranty liability is 28k at dec 31, y1. on feb 12, y2, befdore finanical statement were issued, Swift received information about product defect that require recall of all units sold in y1. expected that product recall will cost additional 40k. what would swift present in dec 31 y1 fiancial statement?
no disclosure
footnoot disclosure explaing the product recall
footnote disclosure listing estimated amount of 40k in warranty reparits and explaintion of recall
estimated warranty liability of 68k
d
125
Colter Corp has fiscal year end of dec 31 y1. on that date Colter reported total assets of 600k. on feb 1, y2. before y1 financial statement were issued, Colter lost 250k of inventory due to fire. the inventory was total loss and was unisured. HOw should Colter present this information in dec 31 y1 financial sattement?
should not report the loss
should report an allowance for lost inventory in y1 balance sheet
should report extraordinary loss in y1 income statement
disclose the loss in footnote in y1 financila statement
this is an unrecognized subsequent event that did not exist as of balance sheet of dec 31 y1. therefore, there should be no adjustment of y1 financial statement. however, since colter should disclose the loss in footnote since loss is material in amount.
126
which of the following is true for valuing asset to fair value?
price of aset should be adjusted for transaction costs
price should be adjusted for transaportation costs to transport the asset to its principal market
fair value of asset should be adjusted for costs to sell
fair value price is based on entry price to purchase asset
if location is attribute of asset, price in the principle market should be adjusted for costs to transport the asset to its principal or most advantageous market.
127
```
which of the folloiwng is an assumption used in fair value measurements?
asset must be considered in exchange
asset must be inuse
assets is in its highest and best use
most conservative estimate must be used
```
a fair value measurement assumes the highest and best use of the asset that is physically pssible, legally permissible, and financially feasible.
128
```
which of the following is not a valuation technique used in fair value estimates?
incoem appraoicj
market approach
cost approahc
residual value approach
```
there are 3 approahces to valuation techniques for fair value: the market approach, income appraoch, and cost approach. there is no technique called residual value approach
129
```
valuation techniques for fair value that include Black Scholes Meton formula, a binomial model, or discounted cash flows are examples of which valuation techinique?
market
income
cost
exit value approach
```
the income approach uses valuation techniques to convert future amounts to single present value amount. therefore, BlackScholesMerton, binomial models, or discounted cash flow models are examples of income approach.
130
The market approach valuation tecnqiuer for measuring fair value requires which of the following?
price to replace service capacity of the asset
present value of future cash flows
weighted average of present value of future cash flow
prices and other relevant information of transactions from identical or comparable assets
market approach requres prices and other relevant information. present value refers to income approach. price to replace is cost approach
131
A change in valuation technique used to measure fair value should be reported as
a change in accounting estimate reported on a prospective basis
a change in accounting principle with retrospective restatement
an error correction with restatement of financial statements of previous periods
an extraordinary item on current year's income statement
change in accounting estimate reported on a prospective basis
132
```
when measuring fair value, which level has the highest priority for valuation inputs?
levl 1
level 2
lvel 3
level 4
```
fair value hierearchy priorizties inputs to valuation techniques into 3 levels. highest priority given to Level 1 inputs, which are quoted prices in active markets for identical assets and liabilities
133
lewis company formed jan 1 y1. selected balances from historical cost balance sheet at dec 31, y2 as follows:
land 120k
investment in nonconvertible bond 60k
long term debt 80k
average Consumer Price Index was 100 for y1, 110 for y2. in supplementary constant dollar balance sheet at dec 31 y2. theses selected account should be shown:
Land investment longterm debt
132k 60k 80k
120k 60k 88k
132k 66k 80k
120k 66k 88k
in constatnt dollat sheet balance, nonmonetary items are restated to current price level, while monetary items are not restated because they are already stated in current dollars. investment in bonds and long term debt are monetary items since their amounts are fixed by contract in terms of no of dollars.
134
```
when computing pruchasing power gain or loss on net monetary items, which of the following accounts is classified as non monetary?
unamotried premium on bonds payable
allowance for uncollectivel accounts
advances to uncosolidated subsidiaries
accumulated depreciation of equipment
```
accumulated depreciation of equipment
135
the following information pertains to each unit of merchandise purchase d for resale by Vend Co:
March 1 y1
purchase price $8
selling price $12
price level index 110
dec 31 y1
replacement cost 10
selling price 15
price lvel index 121
under current cost accounting, what is the amount of Vend holding gain on each unit of this merchandise?
0.8
0
2
1.2
current cost accounting is a method of valuing and reporting assets, liabilities, revenues, and expenses at their current cost at balance sheet date or at the date of their use or sale. A holding gain is recorded as an increase in an item's value. At dec 31, y1, Vend Co is holding merchandise which is currently valued at $10 per unit, while the original recorded value of merchandise was $8 per unit. Therefore, the holding gain is $2 per unit.
136
```
kerr company purchased machine for 150k on jan 1 y1. at end of year, current cost is 125k. machine has no salvage value, 5y life, and depreciated by straightline method. for year ended dec 31 y1, amount of current cost depreciation exp which appear in supplementary current cost financial statements is
14k
24k
23
25k
```
the requirement is to calculat amount of current cost depreciation exp which would appear in supplementary. depreciation is be measured based on average current cost of asset during the period of use 115 + 125 = /2 = /5 = 24k
137
at dece 31 y1, jannis corp owned 2 assets as follows:
equipment inventory
current cost 100k 80k
receoverable amoutn 95k 90k
Jannis voluntarily disclosed supplementary info about current cost at dec 31 y1. in such a disclosure, at waht amount would Jannis report total assets?
180
185
175
190000
current cost for inventories and equipment is measured at lower of current cost or recoverable amount. total amount for theses assets: 95+80
138
could current cost financial statemnt report holding gains for goods sold during the period adn holding gains on inventory a the end of period?
goods sold inventory
yes no
no yes
no no
yes yes
increases or decreases in current cost of inventroy result from difference between measures of assets at their entry dats (begining of year or purchase date? and measures of assets at their exit dats (end of year or date of use/sale). based on def, holdsing gain would be reported both when inentory is held or sold.
139
income tax basis financial stateents differ from those prepared under GAAP in that income tax basis financial statements:
contain no disclosures about acpital and operating lease opeartions
incliude detalied info about current adn defferred income tax liabilites
regconized certain revenues and exp in deifference reporting periods
do not include nontaxable revenues and nondeductivle expesense in determining income
when financial statements are prepared using an income tax basis, two accounting methods can be used: (1) modified cash basis - hybrid method of IRS and (2) accrual basis - IRS. the modeified cash basis reflects the use of accrual basis for inventories, cost of goods sold, sales, and depreciation, if these are significant. the accural basis uses accurals and deferrela with several exceptions (e.gg, prepaid income, warranty exp). when financial statement are preapred on an income tax basis, the financial statements should not simply repeat ietms and maounts reported in the tax returen. thus, items such as nontaxable municipal interest, and the nonduductible portion of travel and erntertainment exp should be fully refelcted in income statement on basis used for tax purposes, with footnote disclosure of differences between theamount reported in income statements and tax reruent
140
```
liquidation basis of accounting is to be used when
remote
forthcoming
immiment
probable
```
imminent ( likely yo occur at any moment)
141
which of the folloiwng is false
responsible party is the only limtited users
financial projection may contain assumptions not necessariliy likey to occr
financial projection may be expressed as a range of dollastrs
prospective financiatl information may be prepared for general or limite d users
the responsible party is not the only limted user. third parties wtih whom the responsible reaty is negotiating directly are also limited users
142
prospective financial information is defined as
any financial information about past present or future
any financial infoamrtion about present or future
any financial infomartion about future
any financial information about future related to day to day operations
prospective financial information is defined as any financial information about the future
143
which of the following disclosures should prospective financial statements include?
summary of significant accounting policies summary of significant assumptions
yes yes
no no
yes no
no yes
prospective financial statements include information on the purpose of statements, assumptions, and significant accounting policies.
144
a company is required to file quartely financial statemenst with the SEC on form 10Q. comapyn opeartes in industry not subject to seasonal fluctuations. in addition to the most recent quarter-end, for whidh of the following periods is the company required to present balance shets on Form 10-Q
end of preceding fiscal yea
end of repceding fisacal year and end of 2 prior years
end of corresponding fiscal quarter of preceding fiscal year
end of preceding fiscal year and end of corresponding discal quarter of preceding fiscal year
SEC requires that Form 10-Q contain an interim balance sheet as of the end of most recent fiscal quarter and a balance sheet as of the end of preceding fiscal year. an interim balance sheet for the fiscal quarter of preceding year does not need to be provided unless it is necessary for understaindg the impact of seaconal fluctautions
145
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a company is an accelerated filer that is required to file form 10-K iwth SEC. what is the maximum no of days after the company fiscal year end that the compnay has to file form 10-K with the SEC?
90days
120
60
75
```
maximum no of days for accelerated filer to file 10;K is 75 days after company fiscal year end. however a large accelerated filer with 700mil of public float dealine is 60 days and nonaccleerated filers have dealine of 90 days.
146
SEC regulation S-X descibres:
requiresments for information adn forms required by other regulations
a mandate that is publicly traded companies disclose material information to all investors silmultaneously
the reporting requirements for asset backed securities
the form and content of financial statemsnets to be filed with the SEC
SEC regulation S-X describes the form and content of financial statements to be filed with SEC. Regulation S-K describes the requirements for information adn forms required by Regulation S-X. Regulation AB describes reporting requirements for asset backed securities. Regulation FD mandates that publicly traded companoies dsiclose material infor to all investors.
147
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which financial sattements should be presented for a trust?
statements of assets and liabilities
statement of cash flows
statements of change sin net assets
statement of operations
```
statement of assets and liabilities, statement of operations, and statement of changes in net assets are presented for a trust.
148
Largo Corp preapres its financial statements in accordance iwht IFRS. which of the folliwing items is required disclosure on the income statement?
opertaing expenses, nonoperating expenese, adn extraordinary items
gross profit, operating porifts, adn nte profits
reveneus, cost of goods sold, and advertising exp
financ costs, tax epxense, adn income
income statement may be prepared by presenting expenses either by nature or by function. the minimum required disclosures on the income statement include income, finance costs, share of profits and losses using equity method, tax expense, discontinued operations, profit or loss, noncontrolling interest in profit and losses, and net profit attributable to equity holders of parent
149
Glenda Corp prepares it sfinancianl statements in accordance with IFRS. Glenda must report finance costs on the statement of cash flows
in fincnaicing activities
in investing activities or financing activities
in operating activities
either in operating activities or financing activities
under IFRS finance costs (interest exp) may be reported in either the operating or financing sectipoonof the statement of cash flows. however, once it is disclosed in a particular section, it must be reported on a consistent basis.
150
Larimer Coprp prepares its financial stateements in acordance with IFRS. Larimer acquired equipment by issuing 5k shares of its ocmmon sotkc. how should this transaction be reported on the statement of cash flows?
at bottom of statement of cash flows as siginificant noncash transactions
as outflow of cash from investing activties and inflow of cash from financing activeits
inflow of cash from finacning activites adn outflow of cash fro opretaing activites
in the notes to financial statements as significant noncash transactions
this transaction did not involve an exchange of cash, therefore, it is not included on the sattement of cash flows. IFRS requires taht significant noncash transactions be reported in the notes to the financial statements. (note that for US GAAP, if there are only a few significant noncash transactions, they may be reported at the bottom of the statement of cash flows, or they may be reported in a separate schedule in the notes to the financil satteemtns?
151
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for IFRS purposes, cash advances and loans from bank overftad should be reported on the statement of cash flows as
financiang activite
investing
opertaing
other significant noncash activities
```
IFRS requires cash advances and loans from bank overdarft be classfided as operating activities
152
which of the following is true about financial statement requirements under IFRS?
balance shees for 3 years
income statement fo r 3 years
prior year comparative financial statements are required
no specific requirement regarding comparative financial statements
IFRS requires presentation of prior year financial statements for comparative purposes.
153
The gain or loss from discontinued operations is placed in a separate category under other income or loss? True or False
False. Discontinued opeartions are placed in a separate category after income from continuing operations and before extraordinary items.
154
A correction of error is included in cumulative effect of change in accounting principle on income statement? True or False
False. A correction of error requires restatement of financial statements.
155
Separate earnings per share amounts must be presented for both other comprehensive income and comprehensive income? True or False
False. Separate EPS amounts are only required for gains/losses from continuing operations, discontinued operations, extraordinary items, and cumulative effect of accounting changes
156
Prospective financial information includes information on the purpose of the statements, assumptions, and significant accounting policies
True
157
dividend payable
current liabilities (not other liabilities)
158
plant construction in progress by company
plant and equipments (not items exluded from balance sheet)
159
land (held for possible future building site)
investnemnts (not plant and equipments)
160
Merchandise inventory (held by Craven Corp on consignment)
items excluded on the balance sheet (not other assets)
161
offices supply inventory
current assets (not plant and equipment)
162
sinking fund cash (First National Bank, Trustee)
investments (not current assets)
163
temporary declince in inventory value
items excluded from the balance sheet (not contra plant and equipment account)
164
estimated warranty cost. the warranty cost are for a one-year warranty on parts and labor
current liabilities ( not deferred charges)
165
convertible bonds
long term liabilities (not investments)
166
securtities held as collateral
items excluded from balahcen sheet (not other assets)
