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Becker CPA Cards > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

Name the single source of authoritative nongovernmental U.S. GAAP

A

The FASB “Accounting Standards Codification” ASC

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2
Q

The term “International Financial Reporting Standards” includes what standards

A

International Accounting Standards (IAS)
International Financial Reporting Standards (IFRS)
IFRIC Interpretations
SIC Interpretations

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3
Q

Who are the primary users of general purpose financial reports?

A

Existing and Potential:
Investors
Lenders
Other Creditors

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4
Q

Name the pervasive constraint on the information provided in financial reporting

A

Cost Constraint:
The benefits of reporting financial information must be greater than the costs of obtaining and presenting the information

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5
Q

Name the fundamental qualitative characteristics of useful financial information

A

Relevance and Faithful Representation

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6
Q

Name the Elements of relevance

A

Predictive value
Confirming value
Materiality

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7
Q

Name the three elements of faithful representation

A

Completeness
Neutrality
Freedom from Error

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8
Q

Name the enhancing qualitative characteristics of financial information

A

Comparability
Verifiability
Timeliness
Understandability

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9
Q

According to SFAC #5 what should a full set of financial statements include

A 
Statement of Financial Position
Statement of earnings
Statement of Comprehensive Income
Statement of Cash Flows
Statement of Changes in Owners Equity
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10
Q

What is the difference between realization and recognition

A

Realization-When sold and converted to cash

Recognition-When recorded in the financial statements

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11
Q

List 10 elements of financial statements according to SFAC #6
CREG and LALEID

A 
Comprehensive Income
Revenues
Expenses
Gains
and 
Losses
Assets
Liabilities
Equity
Investments by Owners
Distributions to Owners
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12
Q

List the six elements of financial statements according to the IASB Framework

A 
Assets
Liabilities
Equity
Income
Expenses
Capital maintenance adjustments
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13
Q

Name the five elements of present value measurement per SFAC #7
EVTUO

A

Estimate of future cash flow
Expectations about timing Variations of future cash flows
Time value of money (the risk free rate of interest)
The price for bearing Uncertainty
Other factors (eg liquidity issues and market imperfections)

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14
Q

Describe the expected cash flow approach for present value computations

A

Considers a range of possible cash flows and assigns a (subjective) probability to each cash flow in the range to determine the weighted average or “expected” future cash flow

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15
Q

What is the presentation order of the major components of an income and retained earnings statement
IDEA

A

Income From Continuing Operations
Discontinued Operations
Extraordinary Items
Changes in Accounting Principle

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16
Q

The gain (loss) from discontinued operations can consist of

A

An impairment loss, a gain (loss) from actual operations, and a gain (loss) on disposal

17
Q

In what period are the following reported:
An impairment loss?
A gain (loss) from actual operations?
A gain (loss) on disposal

A

All are reported in the period in which they occur

18
Q

In reporting discontinued operations, how is a “component” of an entity defined under U.S. GAAP and IFRS

A 
U.S. GAAP
An operating segment
A reportable segment
A reporting unit
A subsidiary
An asset group
IFRS
A separate major line of business or geographical area of operations
A subsidiary acquired exclusively with a view to resale
19
Q

How do we account for subsequent increases in the fair value of a discontinued component

A

A gain is recognized for the subsequent increase in fair value minus costs to sell (but not in excess of the previously recognized cumulative loss). The gain is reported in the period of increase.

20
Q

What types of costs are associated with the exit and disposal activities

A

Involuntary employee termination
Costs to terminate a contract that is not a capital lease
Other costs associated with exit or disposal activities

21
Q

Define extraordinary items

A

Material in Nature
Of a character significantly different from the typical or customary business activities (unusual)
Not expected to recur in the foreseeable future (infrequent)
Not normally considered in evaluating the ordinary operating results of an enterprise

22
Q

List some examples of extraordinary items

A

The abandonment of, or damage to, a plant due to an infrequent earthquake or an infrequent flood
An expropriation of a plant by the government
A prohibition of a product line by a newly enacted law or regulation.

23
Q

Name the three types of accounting changes

A

Change in accounting principle
Change in accounting estimate
Change in accounting entity

24
Q

How is a change in accounting principle reported?

A

A cumulative effect of change is included in the retained earnings statement as an adjustment of the beginning retained earnings balance of the earliest year presented
Prior period financial statements are restated if presented

25
Q

What are the special changes in accounting principle?

How are special changes in accounting principle reported?

A

A change to LIFO from another method of inventory pricing under U.S. GAAP
Any other change in which a cumulative effect adjustment is considered impractical to calculate
Special changes are reported prospectively (like a change in estimate)

26
Q

How is a change in an accounting estimate reported

A

Prospectively
The effect is shown in the current and or future periods that are affected by the change
Financial statements are not restated

27
Q

Under U.S. GAAP, how is a change in the accounting entity reported?

A

All current and prior period financial statements are restated

28
Q

How are error corrections reported?

A

Reported as prior period adjustments to retained earnings and all comparative financial statements presented are restated

29
Q

Define comprehensive income

A

Change in equity (net assets) that results from revenue, expenses, gains, and losses during a period, as well as any other recognized changes in equity that occur for reasons other than investments by owners and distributions to owners

30
Q

Identify five items included in other comprehensive income

PUFER

A

Pension Adjustments
Unrealized gains and losses on available for sale securities
Foreign currency translation adjustments and gains/losses on foreign currency transactions that are designated as economic hedges of a net investment in foreign entity
Effective portion of flow hedges
Revaluation surpluses (IFRS only)

31
Q

List the three formats acceptable for reporting comprehensive income. Which format prohibited under IFRS?

A

Statement of Comprehensive Income (Single Statement Approach)
Statement of Income followed by separate Statement of Comprehensive Income (Two statement approach)
Component of the statement of owners’ equity

32
Q

List some disclosure requirements for comprehensive income

A

Tax effects of each component included in current “other comprehensive income”
Changes in the accumulated balances of components of “other comprehensive income”
Total accumulated other comprehensive income
Reclassification adjustments between other comprehensive income and net income

33
Q

Identify the contents of the summary of significant accounting policies note to the financial statements

A 
Identify and Describe
Measurement bases used in preparing the financial statements
Principles and methods
Criteria
Policies
Pricing
34
Q

Describe the related party disclosures required under U.S. GAAP and IFRS

A

Material related party transactions
Related party notes/accounts receivable
Control Relationships
Note IFRS requires disclosures of key management compensation US GAAP does not require this disclosure

35
Q

What are the US GAAP disclosures requirements for risks and uncertainties

A

Nature of operations
Use of estimates in preparing the financial statements
Significant estimates
Current Vulnerability due to certain concentrations

Becker CPA Cards (2 decks)

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