Concepts you Need to Understand for FAR Flashcards

Question

Transactions with commercial substance?

Answer 1

Gains and losses recognized immediately.

Answer 2

B. Gain in value of debt Instrument A only FASB ASC 815-25-35-1 requires that gains or losses associated with changes in the fair value of the hedging instrument be recognized in net income in the period in which the change in fair value takes place. The gain or loss resulting from changes in the fair value of a cash flow hedge is included in other comprehensive income. Consequently, only the gain in the value of Instrument A would be included in net income.

Answer 3

The income tax due and yet to be paid for the year (payable) is $24,000. The income before income taxes and depreciation is $100,000 and the tax depreciation is taken from that to compute taxable income. Taxable income is $80,000 ($100,000 – $20,000) and the tax rate is 30%, so the current income tax due is $24,000 ($80,000 × 0.30). No part of the tax has been paid (no estimates for the year, yet), so it is all still payable.

Answer 4

The total amount of interest revenue one earns on a note is related to the total payments but also to the present value of the note, with the discount recognized here initially. The total amount to be received on this note is 5 years multiplied by $5,009, as specified, for a total of $25,045. Interest is generally the amount returned over and above the amount originally recognized, which was $19,485 originally. Thus, the total interest revenue is $25,045 − $19,485 (Current Present Val., given), or $5,560.

Answer 5

East Corp.'s pension expense for 20X1 is $174,000, as shown below: Service cost $150,000 Interest cost 0 Amortization of past service cost 24,000 Expected return on plan assets 0 Amortization of unrecognized gain/loss 0 -------- $174,000 ======== The interest cost is computed by applying the appropriate rate times the projected benefit obligation (PBO) at January 1, 20X1. Since this is the first year of the plan, the PBO at January 1, 20X1, is $0, which means that the interest cost for 20X1 is $0. The expected return on the plan assets is computed by applying the appropriate rate times the fair value of the plan assets (PA) at January 1, 20X1. Since this is the first year of the plan, the PA at January 1, 20X1, is $0, which means that the expected return on plan assets for 20X1 is $0. Since no amortization of unrecognized gain/loss is necessary (which is stated in the facts), the pension expense consists of the service cost and the amortization of past service costs.

Answer 6

Gain = Total due on debt - Required restructured payment = Principal + Accrued interest - (Restructured principal + Required interest) = ($1,000,000 + $40,000) - ($950,000 + $30,000) = $1,040,000 - $980,000 = $60,000

Answer 7

Cost of goods sold (COGS) = Beginning inventory (BI) + Purchases (P) – Ending inventory (EI)

Answer 8

it is readily available to the taxpayer and actual receipt is not subject to substantial limitations or restrictions. -- Income that is constructively received is included in gross income. An example is interest income credited to an account by a financial institution. Income is constructively received if: it is readily available to the taxpayer and actual receipt is not subject to substantial limitations or restrictions.

Answer 9

You must map the fluctuations of A/P and A/R. ----- Baker should report $20,000 as net cash provided by operating activities: Net income $78,000 Adjustments Increase in accounts receivable ($82,000) Increase in accounts payable 24,000 (58,000) -------- Net cash provided by operating activities $20,000

Answer 10

A: Price. A bond has a face amount of principal, which is the amount repaid to the owner of the bond at the end of its term. A bond has a coupon rate, which, when multiplied by the face (principal) amount, states the amount of (actual cash) interest paid to the bond owner annually. The value of owning the bond is the (present) value of these two rights, to be repaid the principal at the end of the bond's term, and to be paid the coupon rate of interest every year until then. The present value of these rights is the value of the bonds, hence the rational price. The present value is based on the market rate of interest, since this is the (rational) rate to charge, and discount based on what the market would require of the debtor. “Yield” is a synonym for market rate, and “par” is another term for face amount.

Answer 11

The balance on December 31 should be $1,000,000 less the payment of principal made on December 30. 9/30 Balance $1,000,000 Payment 264,200 Interest* (22,500) 241,700 12/31 Balance 758,300 * $1,000,000 × 9% × 1/4

Answer 12

Carrying amount of note $150,000 Less fair value of land 100,000 ------- Gain $ 50,000 =======

Answer 13

The amount is $264,000, computed as follows: ``` Total obligation $257,000 Add: undiscounted cash flow 68,000* Accretion expense 26,000 Deduct: payment (87,000) --------- $264,000 ``` * The original undiscounted cash flow of $110,000 should be adjusted to the discounted estimate.

Answer 14

A: $8,500 Initial lease obligation on December 31, 20X1 $135,000 Less payment made on December 31, 20X1 - 20,000 -------- Lease obligation during 20X2 $115,000 ======== Portion of December 31, 20X2, payment that is interest = rate x obligation x time = 10% x $115,000 x 1 = $11,500 Portion of December 31, 20X2, payment that is related to lease obligation = payment - interest portion = $20,000 - $11,500 = $8,500 This amount is a current liability since it is payable within the current period. The remaining lease obligation is noncurrent.

Answer 15

A: $307,500 Current liabilities will include any installments of principal due within the next 12 months, plus the interest expense accrued (but not paid) until the end of the year. The second installment of $300,000 is due on September 30, Year 3, so it is a current liability as of December 31, Year 2. The first installment was paid on September 30, Year 2, so only 2/3rds of the $900,000 is still outstanding as principal on December 31, Year 2; only $600,000 is left. The last payment on September 30, Year 2, included all interest to date; thus, we only need to accrue interest from September 30, Year 2, until December 31, Year 2, which is a total of $7,500 based on principal of $600,000 × 0.05 × 3/12 (last 3 months of the year). So, the total current liability as of December 31, Year 2, is $300,000 + $7,500, for a total of $307,500.

Answer 16

An exchange gain occurs when the exchange rate increases between the date a receivable is recorded and the date of cash receipt. Receivables denominated in a foreign currency entitle a company to a fixed number of units of the foreign currency. The U.S. dollar balance of the receivable is measured initially using the exchange rate in effect when the receivable is established. If the exchange rate is higher when the fixed number of units of the foreign currency is received (i.e., cash is received), the dollars received will exceed the balance of the receivable in dollars, and a gain will have occurred.

Answer 17

This building is treated as a leasehold improvement. Although the land lease is for 21 years, the building will be in use for 20 years; thus, the depreciation period for the building is 20 years: Cost / Life = $840,000 / 20 years = $42,000/year Building cost - Depreciation = Carrying Value of Building $840,000 - $42,000 = $798,000

Answer 18

A: $208,000 Cost of goods sold = Sales × (1 - Gross margin ratio) $220,000 = $275,000 × 0.80 Cost of goods sold = Beginning inventory + Purchases - Ending inventory ``` $220,000 = $30,000 + Purchases - $18,000 Purchases = $208,000 ```

Answer 19

A: $0 The “second” forward contract was entered into to hedge a purchase commitment, therefore (assuming that all other conditions are met) it qualifies as a hedge of a purchase commitment. In that case, the forward contract qualifies as a fair value hedge (rather than a cash flow hedge). Therefore, the change in fair value of the derivative (the forward contract) should be included in net income, as should the change in fair value of the hedged commitment. Accordingly, the $3,000 gain (100,000 francs × ($.90-$.93)) would be included in income from continuing operations. If the hedge associated with the derivative qualified as a cash flow hedge, the unrealized gain would be included in other comprehensive income rather than in net income. However, the increase in the fair value of the hedged item, the purchase commitment, should be a $3,000 loss. The unrealized gain of $3,000 associated with the derivative (the hedging instrument) and the $3,000 unrealized loss associated with the hedged instrument (the purchase commitment) should result in a net unrealized gain/loss of $0. Thus, the net unrealized gain/loss included in income from continuing operations is $0. FASB ASC 815-25-35-1–35-8

Answer 20

Revenues, expenses, gains, losses, net income or loss, and other comprehensive income are reported in the consolidated financial statements at the consolidated amounts, which include the amounts attributable to the owners of the parent and the non-controlling interest.

Answer 21

When no amount within the range is a better estimate than any other amount, it is required that the MINIMUM amount in the range shall be accrued.

Answer 22

Since the cash surrender value of a life insurance policy is an asset, then the insurance expense is only the premium less the increase in the asset (surrender value). Annual advance premium payment $40,000 Less increase in cash surrender value ($108,000 - $87,000) 21,000 ------- Life insurance expense for 20X6 $19,000

Answer 23

A: $250,000 On installment sales, separate records must be kept as to each year’s sales, cost of goods sold, and gross profits (gross profit percentage). The gross profits are recognized to the extent of cash collections on the year’s receivables, and deferred to the extent of remaining receivables for that year (at the gross profit percentage). 20X2 20X1 --------- --------- Sales $900,000 $600,000 Less: Write-offs (50,000) (200,000) Collections (300,000) (300,000) --------- --------- Uncollected sales on December 31, 20X2 $550,000 $100,000 Times gross profit % x 0.40 x 0.30 --------- --------- Deferred gross profit $220,000 $ 30,000 ========= ========= Total deferred gross profit on December 31, 20X2 = $220,000 + $30,000 = $250,000

Answer 24

A: $188,813 The inception of a lease is the date of the lease agreement. Rental expense should be as of that date. When the lease payments begin later than the inception date, the lease payments must be spread evenly over the longer period of time, which includes the months between the inception date and the beginning of the lease payments. $28,900 × 56 months = $1,618,400 $1,618,400 ÷ 60 months = $26,973.33 $26,973.33 × 7 months (June through December) = $188,813

Answer 25

- embodies an obligation to repurchase the issuer's equity shares, or is indexed to such an obligation and requires or may require the issuer to settle the obligation by transferring assets.

Answer 26

``` Original shares outstanding 100,000 4/1 issue - 30,000 x 9/12 22,500 6/1 issue - 36,000 x 7/12 21,000 -------- 143,500 Effect of stock dividend x 1.05 -------- 150,675 Treasury stock acquired: 35,000 x 4/12 (11,667) -------- Weighted average outstanding 139,008 ```

Answer 27

A: Net of applicable TAXES.

Answer 28

A: a gain determined by the proportion of cash received to the total consideration. Sable will recognize a gain determined by the proportion of cash received to the total consideration. Similar trucks were exchanged in the transaction; therefore, there would be no gain. Very similar trucks would not significantly change cash flows—so the transaction would lack commercial substance. Now, add in the fact that Bensol paid Sable money. Since Sable received money, Sable now has to record a gain.

Answer 29

A: $20,500 “With recourse” means that the financial entity where the note was discounted can collect fully from Davis Co. in the event the maker does not honor the note. Davis Co. should disclose the full amount ($20,500) of the note as a contingent liability in its December 31, 20X1, financial statements, because it is reasonably possible that Davis will have to make good on the note (FASB ASC 450-20-50-2).

Answer 30

A: $60,000 Since the warrants are detachable, the proceeds from the bond issue must be allocated between the bonds (debt) and the warrants (under stockholder's equity) on the basis of fair market values. Summary journal entry for March 1 issuance of bonds: Dr. Cr. Cash ($500,000 x 1.03) $515,000 Discount on bonds payable ($560,000- $515,000) 45,000 Stock warrants outstanding (1) (500 bonds x 30 warrants x $4) 60,000 Bonds payable 500,000 (1) $500,000 / $1,000 bond = 500 bonds The balance ($60,000) in stock warrants outstanding would be classified under stockholder's equity in the balance sheet. Upon exercise, this balance would be transferred into the appropriate capital stock and additional paid-in capital accounts.

Answer 31

Sales-type leases give rise to manufacturer's profit to the lessor defined as the difference between the sales price and the carrying value of the asset. Present value of lease payments (i.e. sales price) $3,300,000 Less carrying value of leased property 2,800,000 ---------- Income to be reported for year ended December 31, 20X1 $ 500,000 ==========

Answer 32

The freight cost should be capitalized as part of property, plant, and equipment, and the interest cost should be immediately expensed.

Answer 33

the company can make reasonably dependable estimates of the extent of progress toward the completion, contract revenues, and contract costs, and both the buyer and seller can be expected to satisfy their obligations under the contract.

Answer 34

At the face amount minus a discount calculated at the imputed interest rate When a note payable is exchanged for property, goods, or services, and the interest rate is not stated or is unreasonable, record the note at the fair value of the property, goods, or services exchanged OR at the amount that approximates the market value of the note, whichever is more clearly determinable. In the absence of said information, the note is recorded at its present value by discounting all future payments on the note using an imputed interest rate. The imputed interest rate is determined by considering the debtor’s credit standing, prevailing rates for similar debt, and rates at which the debtor can obtain funds. The note payable should be presented in the statement of financial position at its face amount minus the discount calculated at the imputed interest rate.

Answer 35

A: $293,000 Under the principle of consolidation, the parent and subsidiary are considered a single economic entity. Thus, the consolidated balance sheet reports the combined (parent plus subsidiary) asset and liability accounts. The single parent-sub entity owns all the net assets of both entities. Total stockholders' equity accounts on the consolidated balance sheet equals the total stockholders' equity of the parent plus the noncontrolling interest. Therefore, Dallas, Inc., reports total stockholders' equity account on December 31, 20X1, of $270,000 ($50,000 + $80,250 + $139,750) plus 20% of the total stockholders' equity of Style of $23,000 ($20,000 + $44,000 + $51,000), which is $293,000.

Answer 36

Disclosed: $2,000,000 loss and $1,000,000 gain; Accrued: $1,500,000 loss Contingent losses are accrued when probable and reasonably estimable. Contingent losses are disclosed when probable or reasonably probable. Contingent gains are not accrued but should be disclosed when probable or reasonably probable. Only the reasonably probably loss should be accrued ($1,500,000). All of the gains and losses should be disclosed (Losses: $1,500,000 + $500,000 = $2,000,000, Gains: $700,000 + $300,000 = $1,000,000).

Answer 37

A: $90,000 First, add the beginning inventory and purchases in the cost column: $180,000 + $1,020,000 = $1,200,000 When seeking the lower of cost or market method for the retail method, add, in the retail column, first only the beginning inventory, the purchases, and the net markups: $250,000 + $1,575,000 + $175,000 = $2,000,000 Divide these subtotals, to get the cost-to-retail ratio: $1,200,000 ÷ $2,000,000 = 0.6 Next, from the subtotal in the retail column, subtract the sales, normal losses, and markdowns, leaving an ending inventory, at retail, of $150,000: $2,000,000 – $1,705,000 – $20,000 – $125,000 = $150,000 The final step to get the ending inventory at lower of average cost or market is to take the ending inventory at retail of $150,000 and multiply it by the cost to retail ratio of 0.6: $150,000 × 0.6 = $90,000

Answer 38

A: $615,000 This lease qualifies as a capital lease because the lease term of 10 years exceeds 75% of the asset’s useful life of 12 years (10 > 0.75 × 12 = 9). When a lease is considered a capital lease, then the lessee capitalizes the lease property and recognizes a lease obligation for the present value of the minimum lease payments. The minimum lease payments here are the $100,000 a year at the end of each year, and their present value is 100,000 × 6.15 (present value of an annuity in arrears or ordinary annuity, for 10 periods at 10%). Thus, the answer is $615,000: 100,000 × 6.15 = $615,000 ANNUITY IN ARREARS = ordinary annuity.

Answer 39

Monetary assets are cash or items whose amounts are fixed in terms of numbers of dollars. incl. LT receivables

Answer 40

Accrued interest on December 31, 20X1: For 20X0: $10,000 x .12 x (10/12) = $1,000 For 20X1: ($10,000 + $1,000) x .12 = 1,320 ------ Total $2,320 ======

Answer 41

Articulation means that the elements of financial statements are fundamentally interrelated in two ways: (1) beginning balance + changes = ending balance, and (2) assets = liabilities + equity. The concept of double-entry accounting (i.e., debits = credits) incorporates these relationships. In this way, financial statements show different aspects of the same transaction or event affecting the entity. Financial statements are not separate and self-balancing—the balance sheet is dependent upon the current period income or loss from the income statement to be balanced. Similarly, financial statements are affected by the other financial statements—changes in balance sheet elements (assets and liabilities) are reflected in the statement of cash flows.

Answer 42

ARO liability on settlement date of $220,000 (LESS) actual settlement cost of $170,000.

Answer 43

The bonds themselves were sold for 101% of face value, but they were issued between interest payment dates, and thus five months of accrued interest was also received, and will be paid back (along with another month’s interest) at the scheduled interest payment date. Sales price of bonds = 1.01 x 200 x $1,000 = $202,000 Accrued interest = (5/12) (.09 x 200 x $1,000) = 7,500 -------- Total received from bond issuance $209,500 ========

Answer 44

Ball's year-end income statement should include $27,000 as foreign exchange loss, calculated as follows: Foreign currency loss on goods purchased ($90,000 - $96,000) $ 6,000 Loan principal foreign currency loss ($500,000 - $520,000) 20,000 Loan interest foreign currency loss ($25,000* - $26,000) 1,000 Total loss $27,000

Answer 45

[30 day future rate (Less) 90 day contracted future rate] * units of foreign currency

Answer 46

cost of toys: 13,200 redeemers * $.80 = 10,560 less payments to be received: 13,200 redeemers * $.50 surcharge = (6,600) = $3960

Answer 47

A: $51,700 When accounting for a discounted note and computing the cash proceeds, one must first find the maturity value of the note, what will be received by the holder of the note when it comes due. By the time of the discounting, some of the principal has already been paid. Only the second installment, the final $50,000 principal plus interest, will be paid to the bank when due. At the end of December, Year 2, the $50,000 will be received by the bank along with 10% interest (since the principal will have been outstanding for a whole year). On December 31, Year 2, a total of $55,000 maturity value will be due: $50,000 + ($50,000 × 0.1) = $55,000 The discounted proceeds will be based on this amount, the discount rate (0.12), and the discounting period (from July to December of Year 2, 6 months). The discount amount is thus: $55,000 × 0.12 × 6/12 = $3,300 The cash proceeds are the maturity value less the discount: $55,000 – $3,300 = $51,700

Answer 48

Basic earnings per share (EPS) is net income divided by weighted-average common stock outstanding (WACSO). Net income must be reduced by preferred cumulative dividends. Net income - Preferred cumulative dividend = $236,000 - ($600,000 × 0.04) = $212,000 WACSO = 50,000 shares + (8,000 shares × 9/12) = 56,000 shares Basic EPS = $212,000 ÷ 56,000 shares = $3.79/share

Answer 49

The operating cycle is the approximate time from investment in inventory to receipt of cash from sales of inventory. The operating cycle is the time that inventory is kept prior to sale added to the time from sale to cash collection (days in accounts receivables). Thus, the company’s operating cycle is simply the total of both of these times given in the question: days' sales in inventory plus days' sales in accounts receivable: 61 days + 33 days = 94 days

Answer 50

the original contractual rate.

Answer 51

The sale of a division would be a discontinued operation since its disposition represents a strategic shift. The discontinued operation would be recorded in the year the sale occurred. Previous Current Net loss from continuing operations $(600,000) $(50,000) Gain on sale of discontinued operations 900,000 Net income $(600,000) $850,000

Answer 52

not reported on the balance sheet but disclosed in the notes to the financial statements. When a company is obligated to pay a specified amount to a supplier even if it does not take delivery of the contracted goods, it has an unconditional purchase commitment. Such an obligation is not reported on the balance sheet but is disclosed in the notes to the financial statements at the present value of the future required payments.

Answer 53

A: $17,000 The capitalized interest is based on the payments made for the land and progress payments to the contractor based on the amount of the year that these payments were outstanding. The land payment of $120,000 was outstanding the entire year for an expenditure amount of $120,000 × 12/12, or $120,000. The progress payment to the contractor was for $150,000 and was made in September, for only the last four months of the year, thus an expenditure of $150,000 × 4/12, or $50,000. The total weighted-average expenditures was thus $120,000 and $50,000, for a total of $170,000. A larger ($300,000) specifically construction-related debt was outstanding all year, so there is enough principal to capitalize the interest at the 10% rate of the loan. The capitalized interest is thus $170,000 × 0.10, or $17,000.

Answer 54

Publicly traded enterprises

Answer 55

Revenue is recognized when the earnings process is complete and the exchange has taken place. Only 50,000 gallons have been “exchanged” by delivery. Therefore, revenue would be: 50,000 gallons × $3/per gallon = $150,000

Answer 56

A: the U.S. dollar. The objective of translation or remeasurement is to report the subsidiary’s income statement results in the U.S. parent’s currency—which is the U.S. dollar.

Answer 57

A: $21,800 If bonds are purchased at a discount, then the discount is immediately recorded as a credit in the acquiring corporation’s books. As the discount is amortized, it is thus debited, to decrease it. When cash is received as interest, the additional debit to amortize the discount adds to the debit to cash to increase the total credit to recognized revenue. Therefore, the total revenue for the year will be the cash received as interest over the semiannual period, $500,000 (face amount) × 0.08 (8%) × 6/12, or $20,000, plus the $1,800 discount amortized, for a total revenue for the year of $21,800.

Answer 58

A: Discount the bonds at the market rate of interest and deduct bond issuance costs. To determine the issue price for a bond, the cash flows from the bond should be discounted at the yield, or market, rate. The cash flows include the principal repayment and interest payments calculated at the stated rate. The net proceeds are the issue price less the cost to issue the bonds.

Answer 59

Interest expense = Carrying amount × Effective interest rate. Cash payment = Face amount × Stated interest rate.

Answer 60

A: $37,500 The "average cost method" in a periodic inventory system is referred to as the WEIGHTED-AVG. METHOD. weighted-average per unit = COG available for sale / # units of goods available for sale Ending inventory equals the weighted-average cost per unit times the units in ending inventory. Cost of goods sold equals cost of goods available for sale less ending inventory. In this question: Units Unit Cost Total ------ --------- ------- Beginning inventory 10,000 $3.00 $30,000 1/5 purchase 5,000 4.00 20,000 1/15 purchase 5,000 5.00 25,000 ------ ------- Total 20,000 $75,000 Weighted-average cost per unit = $75,000 ÷ 20,000 units = $3.75 per unit Units in ending inventory = 20,000 available for sale - 10,000 sold = 10,000 units Cost of ending inventory = $3.75 per unit × 10,000 units = $37,500 Cost of goods sold = $75,000 - $37,500 = $37,500 Of course, if one noticed that half of the units available for sale were sold, one could have determined that the cost of goods sold would be half of the cost of goods available for sale using the weighted-average method.

Answer 61

Under FASB ASC 805-30-30-1, the excess of acquisition price over the net value of the identifiable assets acquired is accounted for as goodwill:

Answer 62

Its objectives for holding or issuing those instruments Its context needed to understand those objectives Its strategies for achieving those objectives

Answer 63

A: Percentage of completion, immediately; Completed contract, immediately Under the %-COMPLETION method, gains are recognized on profitable long-term contracts as the work is progressing Under the COMPLTD-CONTRACT method, all gains are deferred and recognized when the contract is complete. However, both methods are alike in recognizing estimated ultimate losses on a losing contract immediately.

Answer 64

B: Economic life of asset With a capital lease, the lessee records the asset at the lower of the present value of minimum lease payments or fair value of the asset. The asset is then amortized or depreciated over the life of the asset.

Answer 65

A: deducted in determining the net income of the combined corporation for the period in which the costs were incurred. Business combinations accounted for as an acquisition should treat expenses related to the combination as follows: - Out-of-pocket costs such as fees of finders and consultants are expensed. - Issuance costs such as SEC filing fees are charged to the paid-in-capital account. - FASB ASC 805-10-25-23 states the following: Quote Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder's fees; advisory, legal, accounting, valuation, and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognized in accordance with other applicable GAAP.

Answer 66

Average inventory = (Beginning inventory + Ending inventory) ÷ 2: ($100,000 + $300,000) ÷ 2 = $200,000 Inventory turnover = Cost of goods sold ÷ Average inventory: ($100,000 + $700,000 - $300,000) ÷ (($100,000 + $300,000) ÷ 2) = 2.5

Answer 67

Discontinued Operations

Answer 68

neither interperiod nor intraperiod income tax allocation

Answer 69

Routine employer contributions from the general fund to a pension trust fund

Answer 70

Total revenues, gain, and other support will include the following: Net patient service revenue $500,000 Less Charity care 100,000 $400,000 -------- Other revenue 80,000 Net assets released from restrictions used for operations 50,000 -------- Total $530,000 ======== Charity care does not qualify for recognition as revenues in the financial statements. These are services provided without expectation of payment. The bad debt expense would not affect the patient service revenue reported by a private not-for-profit hospital. In contrast, uncollectible patient accounts would reduce patient services revenues reported by governmental hospitals.

Answer 71

Nongovernmental not-for-profit entities must depreciate all fixed assets used in operations except land. All expenses of nongovernmental not-for-profit entities must be reported as changes in unrestricted net assets. Donated assets must be recorded at fair value at the date of donation. Therefore, the depreciation expense both of the purchased vehicle ($15,000 ÷ 5 years, or $3,000) and of the donated vehicle ($12,000 ÷ 5 years, or $2,400) must be reported under changes in unrestricted net assets. The total depreciation expense of the two vehicles is $5,400.

Answer 72

Modifying items on the cash flow statement based on definite criteria

Answer 73

This question is about the computation of the issue price for a bond. The bonds will pay semiannually, and thus will pay $40,000 twice each year, computed as follows: Face amount of $800,000 × 10% coupon × 6/12 (half-year) = $40,000 The yield of the bonds is 8% annually, but in half-year periods it is 4% a half-year. The present value of the bonds is thus the $40,000 multiplied by the present value of the ordinary annuity for 10 periods and 4%, plus the $800,000 par value of the bonds multiplied by the present value of $1 at 10 periods, 4%: Issue price = ($40,000 × 8.11090) + ($800,000 × 0.67556) = $324,436 + $540,448 = $864,884

Answer 74

In the retail column, add the beginning inventory and purchases to the net markups for a subtotal of $960,000: $920,000 + $40,000 = $960,000 Next, divide the cost of $600,000 by this subtotal: $600,000 ÷ $960,000 = 0.625 Then, get the ending inventory at retail, the $960,000 subtotal less the net markdowns and sales for a total of $120,000: $960,000 – $60,000 – $780,000 = $120,000 Multiply the ending inventory at retail by the cost to retail percentage of 0.625 (62,5%) to reach the ending inventory at cost: $120,000 × 0.625 = $75,000 Cost of sales is the beginning inventory and purchases at cost, less the ending inventory at cost: $600,000 – $75,000 = $525,000

Answer 75

Cash inflows from investing activities: Proceeds from sale of equipment $ 10,000 Cash outflows for investing activities: Purchase of A.S., Inc., bonds (180,000) --------- Net cash used in investing activities $170,000

Answer 76

Inventory increase (is a cash decrease) Accounts payable decrease (is a cash decrease; cash was used to pay down the payables)

Answer 77

any GOVERNMENT GRASPP fun, except for Debt service fund..

Answer 78

The cost of equipment is the price paid to acquire it, or the value paid out (or liability taken on) in the purchase. In this case, the cost of the equipment is the $10,000 paid, plus the value of the note payable, which is the face value of $100,000, less the discount of $24,868. This gives a total cost of $10,000 + 1$00,000 – $24,868 = $85,132.

Answer 79

reported as a reduction in income.

Answer 80

Days' sales in inventory = (Average inventory ÷ Cost of goods sold) × Working days per year: (($336,000 + $288,000) ÷ 2) ÷ $1,200,000 = 0.26 0.26 × 300 days = 78 days

Answer 81

Annual lease payment = Fair value of equipment / Present value factor = $323,400 / 4.312 = $75,000 Total lease amount collected = Annual lease payment x 5 years = $75,000 x 5 = $375,000 Interest revenue = Lease amount collected - Fair value of equipment earned = $375,000 - $323,400 = $51,600

Answer 82

The organization reports the change in unrestricted net assets for the period.

Answer 83

Statement of cash flows

Answer 84

FASB ASC 815-25-35-1 requires that gains or losses associated with changes in the fair value of the hedging instrument be recognized in net income in the period in which the change in fair value takes place. The gain or loss resulting from changes in the fair value of a cash flow hedge is included in other comprehensive income. Consequently, only the gain in the value of Instrument A would be included in net income.

Answer 85

Temporarily restricted assets

Answer 86

Consider the journal entry to record the declaration of the dividend: Dr. Cr. Retained earnings (3,000 x .10 x $9) 2,700 Common stock dividend distributable (3,000 x .10 x $2) 600 Additional paid-in capital ($2,700 - $600) 2,100

Answer 87

A: $0 Resources provided before that period of qualifying activity should be recognized as deferred revenues. Since the amount of qualifying expenditures exceeded the amount of the advance, there would be no deferred revenues reported at year-end. GASB N50.116

Answer 88

A: Because the art will be displayed in general government buildings, the governmental activities would show revenue from donations of $2,000,000 and an expense of $2,000,000. The city council's formal policy for the donated collection of American art meets the three criteria that permit the city to avoid capitalization of the art collection. If the collection is not capitalized, it would not be listed among the capital assets used for governmental activities, and depreciation would not be reported. In the year of the donation, a recipient government should recognize a revenue as well as an expense in the same amount.

Answer 89

objectivity.

Answer 90

A: Alpha $10,000, Omega $8,570 Current receivables acquired as a result of customary trade terms are normally reported at their face value. Long-term receivables are reported at their present value: $10,000 × 0.857 = 8,570.

Answer 91

January sales tax was paid in February since tax was over $500 ($600). $10,600 / 1.06 = $10,000 sales $10,000 x .06 = $600 tax February sales = Credit to sales / (1.00 + Tax rate) = $7,420 / 1.06 = $7,000 ``` February sales tax = $7,000 x .06 = $420 OR = $7,420 - $7,000 = $420 ``` March sales = Credit to sales / (1.00 + Tax rate) = $8,480 / 1.06 = $8,000 ``` March sales tax = $8,000 x .06 = $480 OR = $8,480 - $8,000 = $480 ``` Sales tax payable on 3/31/X1 = $420 + $480 = $900

Answer 92

This is a case of converting from cash-basis rent revenue to accrual-basis revenue. Rent received in cash plus the increase in rental receivables, plus the decrease in unearned rent would be rent revenue on an accrual basis. (Cash plus increase in assets and decreases in related liabilities is revenue.) Thus, the revenue for the year is $80,000 cash received, plus the increase in receivables of $2,800 (from $9,600 to $12,400), adding the decrease in unearned rent of $8,000 (down from $32,000 to $24,000), which adds up to $90,800: $80,000 + $2,800 + $8,000 = $90,800

Answer 93

ARO $100,000 * Credit-adjusted, risk-free rate of 10%

Answer 94

A: As an increase in both permanently restricted net assets and unrestricted net assets The $100,000 donation received may not be spent by the college and should be recorded as an increase in permanently restricted net assets. The $10,000 in investment income should be reported as an increase in unrestricted net assets since no restrictions have been placed on its use. The statement of activities presents changes in the three net asset classes separately.

Answer 95

Earnings per share (EPS) is a comparison of the earnings applicable to common stock with the number of shares of common stock of that enterprise. Basic EPS is based on the weighted-average number of actual common shares (WACS) outstanding during the period. In computing WACS, retroactive application is given to stock splits and stock dividends. WACS is computed as follows: ``` 1/1 100,000 × 1.5 × 12/12 = 150,000 4/1 30,000 × 1.5 × 9/12 = 33,750 183,750 Effect of retroactive split 2 367,500 ```

Answer 96

Beg inventory + ending inventory /2

Answer 97

COGS / Avg. inventory ($100,000 + $700,000 - $300,000) ÷ (($100,000 + $300,000) ÷ 2) = 2.5

Answer 98

A. | The goods should be included in ending inventory of the consignor.

Answer 99

$450,000 The costs incurred by the not-for-profit entity in carrying out its primary mission are considered program expenses. As a museum, both education and research can be considered primary to the Fenn Museum's mission. Supporting services expenses are separated into two categories: Management and general Fundraising

Answer 100

BV of Corp / Total Stockholders Equity Oustanding

Answer 101

It relates to the difference between (Fair Val of Lease / PV Factor * periods) LESS (Fair Val of Equipment)

Answer 102

A: Cash effects of transactions obtaining resources from owners and providing them with a return on their investment Financing activities are associated with a company's liabilities and stockholders' equity. The list of financing activities in FASB ASC 230-10-45-14 and 45-15 therefore includes cash effects of transactions obtaining resources from owners and providing them with a return on their investment.

Answer 103

Cash Flows from Operating Activities: -PLUS Receipts from suppliers, less payments TO suppliers as well as employees. Cash Flows from Non-Capital Financing Activities: - less operating subsidies and transfers to other funds Cash flows from CAPITAL Finance Activities: - PLus proceeds from capital debt (EG value of long-term assets,) LESS purchases of capital assets, LESS principals and interests paid on BONDED debt, Plus any proceeds from sales of LT Assets Cash flows from INVESTING activities: Proceeds from sale of Investments ("liquidated investment porfolio,") Plus interest and divs

Answer 104

A: $5,000 Non-level lease payments must be expensed on a straight-line basis. ``` Year 1 $25,000 Year 2 30,000 Year 3 35,000 ------- Total rent payments $90,000 ``` Lease term 3 years Yearly rent $30,000 The entry for the first payment would be: Rent expense $30,000 Cash $25,000 Lease liability 5,000

Answer 105

Recognize previously unrecognized items that the entity expects to sell

Answer 106

INTERPERIOD EQUITY is a government's obligation to disclose whether current-year revenues were sufficient to pay for current-year benefits, or did current citizens defer payments to future taxpayers, i.e. it refers to whether current-year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume burdens for services previously provided.

Answer 107

A: $60K Since the warrants are detachable, the proceeds from the bond issue must be allocated between the bonds (debt) and the warrants (under stockholder's equity) on the basis of fair market values. Summary journal entry for March 1 issuance of bonds: Dr. Cr. Cash ($500,000 x 1.03) $515,000 Discount on bonds payable ($560,000- $515,000) 45,000 Stock warrants outstanding (1) (500 bonds x 30 warrants x $4) 60,000 Bonds payable 500,000 (1) $500,000 / $1,000 bond = 500 bonds

Answer 108

In the year of the donation, a recipient government should recognize a revenue as well as an expense in the same amount.

Answer 109

Derived tax revenues are reported when the underlying transaction has occurred, and for the modified accrual method of accounting, when the resource is considered to be available. At the fund level, the General Fund computes revenues using the modified accrual method. Furthermore, governmental entities report revenues net of any allowance for doubtful accounts. A total of $100,000 of the beginning receivable had been deferred and $50,000 was classified as doubtful. Therefore, the balance ($300,000) would have been previously recognized as revenue of a prior period. When you subtract the $300,000 of prior-year revenues from current-year receipts ($1,250,000) and add to it that portion of the ending receivable considered to be available at year-end ($125,000) you have revenues for the current year equal to $1,075,000. Beginning receivables $450,000 Beginning deferred revenues (100,000) --------- $350,000 Beginning doubtful accounts (50,000) --------- Prior-year revenues $300,000 ========= Current-year receipts $1,250,000 Prior-year revenue 300,000 ----------- $950,000 Available at end of year 125,000 ----------- Current-year revenue $1,075,000 ===========

Answer 110

Quick ratio = Current assets (excluding Inventories and Prepaid assets) ÷ Current liabilities: (Cash + Net A/R + Short-term marketable securities) ÷ Current liabilities ($60,000 + ($180,000 - $8,000) + $90,000) ÷ $400,000 = 0.81 (rounded) All of the assets listed are current liabilities. Inventory and prepaid rent are excluded from the quick ratio.

Answer 111

Net Income LESS increases in A/R (or plus decreases) PLUS increases in A/P (or less descreases) = Net Cash Provided by Operating Activities

Answer 112

1) Execution of the capital lease, 1/1/01: [DR] Capital Outlay - $61,446 [CR} Oth. Financing Sources - $61,446 2) 1st payment of Cap Lease on 12/31/01: [DR] Debt Service Exp. - principle - $3,855 [DR] Debt Service Exp. - Interest, aka lease payable times 10% - $6,145 [CR] Cash - $10,00 3) Depreciation on Cap Lease: NONE ON GOVERNMENTAL FUND FINANCIAL STATEMENTS (CRMF) 4) Supplies Inventory: [DR] Inventory - $2,000 [CR] Fund Bal. - non Spendable - $2,000 5) Copier Supplies Expenditures: Expenditures - $5,000 Cash - $5,000

Answer 113

A recognized financial asset and financial liability, except any listed in the following paragraph A firm commitment that would otherwise not be recognized at inception and that involves only financial instruments (An example is a forward purchase contract for a loan that is not readily convertible to cash. That commitment involves only financial instruments—a loan and cash—and would not otherwise be recognized because it is not a derivative instrument.) A written loan commitment The rights and obligations under an insurance contract that is not a financial instrument (because it requires or permits the insurer to provide goods or services rather than a cash settlement) but whose terms permit the insurer to settle by paying a third party to provide those goods or services The rights and obligations under a warranty that is not a financial instrument (because it requires or permits the warrantor to provide goods or services rather than a cash settlement) but whose terms permit the warrantor to settle by paying a third party to provide those goods or services A host financial instrument resulting from the separation of an embedded nonfinancial derivative instrument from a nonfinancial hybrid instrument under [FASB ASC] 815-15-25-1, subject to the scope exceptions in paragraph 8. (An example of such a nonfinancial hybrid instrument is an instrument in which the value of the bifurcated embedded derivative is payable in cash, services, or merchandise but the debt host is payable only in cash.)

Answer 114

Using the indirect method, Karr computes cash flow from operating activities as follows: Reported 20X1 net income $300,000 Add depreciation expense 52,000 Deduct gain on sale of equipment ( 5,000) --------- Net Cash flow from operating activities $347,000 =========

Answer 115

A: a contract that has its settlement value tied to an underlying notional amount. A derivative instrument has three characteristics: 1) There is an underlying or notional amount. 2) There is little or no initial net investment. 3) Its term requires or permits net settlement.

Answer 116

When warranties are sold

Answer 117

The components of relevance are predictive value, confirmatory value, and materiality. The characteristics of faithful representation are completeness, neutrality, and being free from error.

Answer 118

=Opening balance retained earnings + yearly income - yearly divs = END BAL RET. EARNINGS

Answer 119

The amount of net gain or loss recognized in earnings when a hedged firm commitment no longer qualifies as a fair value hedge

Answer 120

An interest rate that is lower than nonconvertible debt

Answer 121

A/R: Consolidated - (sum of parent and sub)

Answer 122

A: $308,000 Consolidated current assets before eliminations $320,000 Less intercompany profit on remaining inventory purchased from Kent (Note 1) 12,000 -------- Adjusted consolidated current assets $308,000 ======== Note 1: Computation of intercompany profit: Gross profit rate = $48,000 / $240,000 = 20% Gross profit in inventory = 20% x $60,000 = $12,000 Note also that since Clark owns less than 20% of Dean, Inc., and does not exert significant influence, the gross profit from the sale to Dean does not require elimination.

Answer 123

Normally, resources provided before that period of qualifying activity should be recognized as deferred revenues. Insofar as the amount of qualifying expenditures was less than the amount of the advance, the deferred revenues would be equal to the difference. Advance received $1,000,000 Qualifying expenditures 800,000 ---------- Deferred revenues $ 200,000 ==========

Answer 124

Contributions from other identified sources (for example, state subsidies or federal grants)

Answer 125

The statement permits election of fair value measurement on a contract-by-contract basis.

Answer 126

A reconciliation of ending retained earnings to net cash flow from operations

Answer 127

A: $415,000 At the fund level, derived tax revenues are reported using the modified accrual method. Using modified accrual, that portion of the ending receivable which is measurable but not available, or accounted for as an allowance, is accounted for as deferred revenue. Deferred Revenues Ending receivable $600,000 Less collections June 30 through August 30 (125,000) Less ending allowance for doubtful accounts (60,000) --------- $415,000

Answer 128

The intrinsic method is the excess of the market price over the exercise price. Market price (100 x $10) $1,000 Exercise price (100 x $9) 900 ------ Intrinsic value $ 100

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