Chapter 3

Question 1

A discontinued operation includes a component of an entity (or a group of components) that meets the following criteria:

Answer 1

1. It (a) has been disposed of or is classified as held for sale
2. Its disposal is a strategic shift

Question 2

Are discontinued operations reported separately net of tax?

Answer 2

True

Question 3

How is a component that is held for sale classified?

Answer 3

it is measured at the lower of its carrying amount or fair value minus cost to sell.

Question 4

List three types of accounting changes

Answer 4

1. a change in accounting principle
2. a change in accounting estimate
3. a change in the reporting entity

Question 5

Change in Accounting Principle requires _____________ Application

Answer 5

Retrospective application
Retrospective application requires the carrying amounts of (1) assets, (2) liabilities, and (3) retained earnings (or other components of equity or net assets) at the beginning of the first period reported to be adjusted for the cumulative effect (CE) of the new principle on the prior periods.

Question 6

Change in Accounting Estimate _________ Application

Answer 6

Prospective Application

Its effects must be accounted for only in (1) the period of change and (2) any future periods affected

Question 7

Change in the Reporting Entity results in what?

Answer 7

A change in the reporting entity results in statements that are effectively those of a different entity.

Question 8

Error correction in prior period results in what?

Answer 8

must be reported as an error correction by restating the prior-period statements

Question 9

EPS is calculated for both common and preferred stock?

Answer 9

False, it is only calculated for common stock.

Question 10

Are dividends subtracting from net income for calculating EPS?

Answer 10

Yes.

Question 11

When are stock dividends and stock splits assumed to have occurred for calculating BEPS?

Answer 11

At the beginning of the year.

Question 12

EPS is required for both public and private companies?

Answer 12

False, only for public companies

Question 13

Income in the BEPS numerator is reduced by dividends

Answer 13

1. Declared in the current period on preferred stock (whether or not paid)
2. Accumulated for the current period on cumulative preferred stock (whether or not earned).

Question 14

Define the If-Converted Method

Answer 14

he if-converted method calculates DEPS assuming the conversion of all dilutive convertible securities at the beginning of the period or at the time of issue, if later.

Question 15

Define the Treasury Stock Method

Answer 15

Call options and warrants are dilutive only if the average market price for the period of the common shares is greater than the exercise price of the options or warrants (they are in the money).

Question 16

The Completed-Contract Method

Answer 16

Revenue and gross profit are recognized only upon completion.

Question 17

When is an estimated loss recognized under both the completed-contract and percentage-of-completion methods

Answer 17

As soon as an estimated loss on any project becomes apparent

Question 18

When is the cost recovery method appropriate for use?

Answer 18

when receivables are collectible over an extended period and no reasonable basis exists for estimating the degree of collectibility.

Question 19

When is the installment method appropriate for use?

Answer 19

when receivables are collectible over an extended period and no reasonable basis exists for estimating the degree of collectibility.

Question 20

How do you calculate gross profit percentage

Answer 20

Gross profit % = Gross profit on installment sales/installment sales

Question 21

How do you calculate realized gross profit

Answer 21

Realized gross profit = cash collected X Gross Profit %

Question 22

How do you calculate deferred gross profit

Answer 22

Deferred Gross profit = Installment Receivables X Gross Profit %

Question 23

Valuation Techniques: Define market approach

Answer 23

is based on information, such as multiples of prices, from market transactions involving identical or comparable items.

Question 24

Valuation Techniques: Define income approach

Answer 24

uses valuation methods based on current market expectations about future amounts, e.g., earnings or cash flows.

Question 25

Valuation Techniques: Define cost approach

Answer 25

is based on current replacement cost. It is the cost to buy or build a comparable asset.

Question 26

The Fair Value Hierarchy: Level 1

Answer 26

They are unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.

Question 27

The Fair Value Hierarchy: Level 2

Answer 27

quoted prices for similar items in active markets, quoted prices in markets that are not active, and observable inputs that are not quoted prices.

Question 28

The Fair Value Hierarchy: Level 3

Answer 28

They are unobservable inputs that are used given no observable inputs. They should be based on the best available information in the circumstances