Chapter 1

Question 1

what are the fundamental qualitative characteristics of useful financial info? (2)

Answer 1

faithful representation and relevance

Question 2

what is the objective of general purpose financial reporting?

Answer 2

to provide financial information that is useful to primary users.

Question 3

three ingredients of faithful representation?

Answer 3

1. completeness
2. neutrality
3. freedom from error
   (COMPLETELY NEUTRAL IS FREE FROM ERROR)

Question 4

three ingredients of relevance?

Answer 4

1. predictive value
2. confirming value
3. materiality
   (PASSING CONFIRMS MONEY)

Question 5

when are revenues realized?

Answer 5

revenues and gains are realized when assets are exchanged for cash or claims to cash.

Question 6

what are the four enhancing qualitative characteristics?

Answer 6

1. timeliness
2. understandability
3. comparability
4. verifiability
   (COMPARE AND VERIFY IN TIME TO UNDERSTAND)

Question 7

define monetary unit

Answer 7

monetary unit means that money is the common denominator for economic activity and provides an appropriate basis for accounting measurement and analysis.

Question 8

define periodicity

Answer 8

The periodicity assumption is that economic activity can be divided into meaningful time periods.

Question 9

define economic entity

Answer 9

The economic entity assumption is that economic activity can be accounted for when considering an identifiable set of activities.

Question 10

does comprehensive income include investments by owners?

Answer 10

no. comp income is the change in equity of a business during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity except those resulting from investments by owners and distributions to owners.

ie - dividends paid to shareholders

Question 11

what financial statement is AOCI reported on?

Answer 11

balance sheet/stmt of financial position

Question 12

if Company A acquired 100% of Company B in the CY, what related party disclosures would need to be reported? (GAAP)

1. officers’ salaries
2. officers’ expenses
3. loans to officers
4. interco sales

Answer 12

only 3 (loans to officers) because that is considered outside the ordinary course of business.

Question 13

if Company A acquired 100% of Company B in the CY, what related party disclosures would need to be reported? (IFRS)

1. officers’ salaries
2. officers’ expenses
3. loans to officers
4. interco sales

Answer 13

1 and 3 - under IFRS, loans to officers and key mgmt compensation would require disclosure

Question 14

when should significant estimates be disclosed?

Answer 14

significant estimates should be disclosed when it is reasonably possible (not probable) that the estimate will change in the near term and that the effect of the change will be material. immaterial items are not disclosed.

Question 15

when a change in accounting principle is inseparable from a change in estimate, how is the change handled?

Answer 15

the change is handled as a change in estimate - prospectively. no cumulative effect adjustment is made.

disclosed as component go continuing operations.

Question 16

under US GAAP, a material loss OR gain should be presented separately as a component of income from continuing operations when it is…

Answer 16

not unusual in nature but infrequent in occurrence.

Question 17

where is cumulative effect of a change in accounting principle shown?

Answer 17

as an adjustment to beginning RE

Question 18

How should the effect of a change in accounting estimate be accounted for?

Answer 18

In the period of change and future periods if the change affects both.

Question 19

how is change in depreciation method handled?

Answer 19

prospectively

Question 20

where should the cumulative effect of a change in accounting estimate should be shown separately:

Answer 20

TRICK QUESTION!. It should not be recorded separately on any financial statement. A change in estimate is handled prospectively. No cumulative effect adjustment is made and no separate line item presentation is made on any financial statement. If a material change is being made, appropriate footnote disclosure is necessary.

Question 21

when are foreign currency gains/losses extraordinary?

Answer 21

NEVER.

Question 22

when can a liability be recognized associated with an exit or disposal plan?

Answer 22

1. an obligating event has occurred.
2. the event results in a present obligation to transfer assets or to provide services in the future.
3. the entity has little or no discretion to avoid the future transfer of assets or providing of services.

Question 23

when should an extraordinary loss be recorded? interim or YE stmts?

Answer 23

entirely in the quarter the loss occurs.

Question 24

when should an extraordinary loss be recorded? interim or YE stmts?

Answer 24

entirely in the quarter the loss occurs.

Question 25

how will a building held for sale be valued?

Answer 25

the building actively marketed for sale will be valued at lower of book value or NRV (FV less cost to sell)

Question 26

should interest expense, income taxes, and general corp expenses be allocated to the divisions when determining operating profits per segment?

Answer 26

no. operating profit by segments is based on the measure of profit reported to the "chief operating decision maker." int exp, income taxes, and general corp expenses are not allocated to the divisions solely for the purposes of segment disclosures; they may be allocated that is how the segments report to the "chief operating decision maker."

Question 27

what are segment reporting size rules

Answer 27

a segment meets the size test (10%) if the absolute amount of its reported profit or loss is 10% or more of the greater, ABSOLUTE VALUE, of 1. the combined reported profit of all operating segments that did not report a loss OR 2. the combined reported loss of all operating segments that did report a loss.