Conceptual Framework

Question 1

Cash Basis

Answer 1

revenue recognized when earned, expenses recognized when paid, Fixed assets are expensed and not capitalized.

Question 2

Tax Basis

Answer 2

Revenues and Expenses are recognized in the same period and amount as they are when preparing the tax return.

Question 3

Private Company Council PCC

Answer 3

Evaluate whether nonpublic entities should be exempt from GAAP principles

Question 4

Primary Qualitative Characteristics

Answer 4

Relevance and Faithful Representation

Question 5

Relevance

Answer 5

Capable of making a difference in a user’s decision making process (Roger is PC)

Predictive Value
Confirmatory Value
or if Both-also Materiality

Question 6

Faithful Representation

Answer 6

Roger is Never on the FENCe
Information depicts what it’s supposed to

Free from Error
Neutral
Completeness

Question 7

Enhancing Qualitative Characteristics

Answer 7

CUT like a V

C-Compatibility-same principles as similar businesses
U-Understandability-same methods in different periods
T-Timeliness-info is available when it’s useful
V-Verifiability-a different person would agree with info

Question 8

Cost Benefit (Constraint)

Answer 8

Overrides the usefulness on the information presented

Cost of obtaining the info shouldn’t outweigh the benefit

Question 9

Full Set of Financials

Answer 9

Balance Sheet (Stmt of Position)
Income Statement (Stmt of Earnings and Income)
Stmt of Cash Flows
Stmt of changes in owners Equity

Question 10

10 Key Elements of the Financials

Answer 10

Assets,liabilities, equity, investments by owners, distributions to owners, comprehensive income, revenue, expenses, gains and losses.

Question 11

Assets

Answer 11

resource that has a future benefit that can be obtained

Question 12

Liabilities

Answer 12

obligation that needs to use an asset

Question 13

Equity (Net Assets)

Answer 13

assets left over after deducting liabilities

Contributions to owners
Distributions to owners
Comprehensive Income

Question 14

Comprehensive Income

Answer 14

all changes in equity other that owner sourced transactions-these effect comprehensive income but not net income

Question 15

DENT (Comprehensive Income)

Answer 15

D-Derivative Cash Flow Hedges
E-Excess adjustment of pension PBO and FV of plan assets
N-Net unrealized gains and losses on available for sale securities
T-Translation adjustments for foreign currency

Question 16

Recognize a financial statement element

Answer 16

meets the definition of an element(asset/liabilitiy/rev/gain etc)
can be measured in monetary terms
item is relevant and has faithful representation (useful)

Question 17

Measure in Monetary Terms

Answer 17

Historical Cost-amount you paid for it PPE
Replacement cost- Inventory
FMV-cost between market participants
NRV- amount expected to be converted into (AR)
PV-discontinued cash flows due to the time value of money

Question 18

Required to be measured at FV

Answer 18

Investments in debt securities (trading securities or available for sale)
Investments in equity securities-except for those under the equity method
Derivatives
Impairment losses

Question 19

Fair Value Election

Answer 19

Allows you to measure things at fv and other similar items not at FV, election is permanent, elected when instrument is acquired or at another “election date”

Unrealized gains/losses are reported in income

cash=face amount
investment=market value
accounts receivable=NRV
inventory=NRV

Question 20

3 valuation techniques

Answer 20

MIC

Market Approach-use data of transactions of identical assets
Income Approach-analyze future amounts in the form of revenue,cost savings, earnings
Cost Approach-cost to be incurred to replace the benefit derived from an asset

Question 21

3 levels of inputs

Answer 21

Level 1- observable data from actual market transactions
Level 2-identical data but not from an active market or not identical assets
Level 3-unobservable data mostly management decisions

Question 22

Cash Flow use in FV Measurement

Answer 22

Traditional Approach-the most likely amount

Expected-weighted average of different possibilities

Question 23

Revenue and Expense Recognition Accrual method

Answer 23

Revenues-recognized in the period earned

Expenses-recognized in period incurred

Question 24

Revenue and Gains are Recognized when

Answer 24

Earned-earnings process is completed

Realized-collect the cash

Question 25

Sales that have right of return

Answer 25

if return is Reasonable Estimable-revenue is recognized in the period of the sale with an allowance for returns

Return is not reasonably estimable- revenue is not recognized until the right of return has expired

Question 26

Expenses or Losses are recognized when

Answer 26

Incurred-economic benefit is consumed or used up or assets lose future benefit as they are used

Question 27

Financial Stmt Disclosures

Answer 27

Nature of Operations
Use of Estimates
Certain Significant Estimates
Vulnerability with certain business concentrations

Question 28

Recognition

Answer 28

you booked it/reported it in the FS

Question 29

Realization

Answer 29

Sold something got the money

Question 30

Transaction costs when determining most advantageous market

Answer 30

Considered when deciding what market is the most advantageous but ignored when you measure the asset at FMV