Conceptual Framework Flashcards

Question

A donor gives $10,000 to a non-governmental, not-for-profit organization with instructions that it must be used to fund the organization’s general operating expenses during the following fiscal year. The donation will increase the organization's ``` A. Unrestricted net assets. B. Restricted net assets. C. Restricted contra assets. D. Restricted retained earnings. ```

Answer 1

The correct answer is: B Explanation: The correct answer is (B). A donor gives $10,000 to a non-governmental, not-for-profit organization with instructions that it must be used to fund the organization’s general operating expenses during the following year. The donation will increase the organization’s restricted net assets. Restricted net assets are assets of a non-governmental, not-for-profit entity that have special restrictions that are imposed by the donor. Only a donor can set such a restriction. The restriction stipulates how the assets must be used and at what time. The restriction can also be removed after a certain time has passed.

Answer 2

The correct answer is: C Explanation: The correct answer is (C). On an accrual basis, the company would report net income as on December 31 of $77,500. Summary Amount Net income as per cash basis $75,000 Increase in accounts receivable $5,000 Decrease in prepaid expenses $(3,000) Decrease in accrued liabilities $500 Net income as per accrual basis $77,500 (A) is incorrect because increase in accounts receivable is not considered (i.e. $72,500 = $75,000 - $3,000 + $500). (B) is incorrect because accrual basis and cash basis net income would not be same. $75,000 is the cash basis net income which should be adjusted for accounts receivable, prepaid expenses and accrued liabilities. (D) is incorrect because decrease in prepaid expenses should be deducted instead of adding it (i.e. $83,500 = $75,000 + $5,000 + $3,000 + $500).

Answer 3

The correct answer is: D Explanation: The correct answer is (D). An entity is required to report Accumulated Other Comprehensive Income separately from Retained Earnings, Capital Stock, and Additional Paid-In Capital in the Equity section of the Statement of Financial Position (Balance Sheet). It is not reported in the Income Statement, Statement of Comprehensive Income, or Statement of Cash Flows. Accumulated Other Comprehensive Income is a component of equity that includes the total of Other Comprehensive Income for the current period and previous periods. Total Shareholders' Equity is reported in the Statement of Financial Position.

Answer 4

The correct answer is: B Explanation: When dividends are distributed by equity method investees, and when the distributions are in excess of earnings attributable to investor entities, the return of the investment would be handled differently than the return on the investment. Essentially, there would be no earnings to be adjusted for the cash distribution in the preparation of the statement of cash flows. The return of investments would need to be reflected in the investing section of the statements.

Answer 5

The correct answer is: D Explanation: Under the pure cash basis, revenues are recognized when cash is received, rather than when earned; expenses are recognized when cash is disbursed rather than when incurred; long-term assets are not capitalized, and, hence, no depreciation or amortization is recorded; and no accruals are made for taxes and no prepaid expenses are recorded.

Answer 6

The correct answer is: B Explanation: The correct answer is (B). Income available to common shareholders = $2,000,000. Calculation of weighted average number of common shares:- The common shares issued on May 1 will be appropriated for 8 months: 500,000 x 8 / 12 = 333,333 shares. Weighted average number of shares outstanding = 1,500,000 + 333,333 = 1,833,333. Basic EPS = $2,000,000 / 1,833,333 = $1.09. (A) is incorrect because the new issue on May 1 has to be prorated as outstanding for 8 months of the year. (C) is incorrect is incorrect due to inaccurate calculation. (D) is incorrect because the new issue on May 1 is ignored in calculating the average number of shares.

Answer 7

The correct answer is: D Explanation: Convertible securities are only recognized in the computation of diluted earnings per share for any period for which their effect is dilutive.

Answer 8

The correct answer is: B Explanation: The IASB Conceptual Framework addresses the concepts of financial and physical maintenance. Under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity. Under a physical concept of capital, such as operating capability, capital is regarded as the productive capacity of the entity based on.

Answer 9

The correct answer is: C Explanation: Parker, in recording the inventory sale to its subsidiary, Smith, recognized cost of goods sold of $100,000 [i.e., $250,000 × ($400,000 / $1,000,000)]. In recording the later sale of the same inventory to an unrelated customer, Smith recognized cost of goods sold of $250,000. However, from a consolidated perspective, the sale to Smith (the affiliated company) did not occur. Therefore, the amount to be reported as cost of goods sold in the consolidated income statement is $500,000 (i.e., $400,000 + $350,000 - $250,000).

Answer 10

The correct answer is: C Explanation: All joint costs of informational materials or activities should be reported as fundraising expenses unless it can be demonstrated that a program or management and general function has been conducted in conjunction with the appeal for funds. In the question, it appears that a program function and a fund-raising appeal have joint costs. There is the alternative of no cost allocation and classifying all costs as fundraising costs, but this is not one of the options. Answers (a) and (b) are not appropriate; no general service is mentioned as having been accomplished. Since no general services are mentioned, no allocation would be appropriate to this function. Only answer (c) which allows for joint allocation might be appropriate. One must assume that the 60/40 allocation is appropriate under the circumstances - although no information is given to verify this assumption.

Answer 11

The correct answer is: A Explanation: For unusual or infrequent Items, there are two options for reporting: Income Statement (above Income from Continuing Operations) Footnotes to Financial Statements Unusual or infrequent Items get Retrospective or Prospective treatment in the financial statements. (A) is correct because Raim sustains these losses on a regular basis, so they are not unusual or infrequent and should be shown as a component of income from continuing operations. Cane's loss is unusual/infrequent, so Cain can present the loss using one of the two methods listed above.

Answer 12

The correct answer is: C Explanation: The correct answer is (C). Purpose of a statement of financial position for a non-governmental, not-for-profit entity is to provide relevant information about the assets, liabilities, net assets, and about their relationships to one another at a moment in time. (A) is incorrect because the statement of cash flows provides information about the cash receipts and cash payments during a period in time. (B) and (D) are incorrect because such information is provided in the statement of activities.

Answer 13

The correct answer is: A Explanation: EDGAR stands for the Electronic Data Gathering, Analysis and Retrieval System. EDGAR is intended to benefit electronic filers, enhance the speed and efficiency of SEC process, and readily make financial information available to users.

Answer 14

The correct answer is: C Explanation: The unit-of-measure assumption presupposes that costs incurred at different points in time are intermingled in the accounts, and thus, it must be assumed that the purchasing power of the dollar remains constant over time. Inflation makes this assumption questionable.

Answer 15

The correct answer is: C Explanation: The summary of significant accounting policies should identify and describe the accounting principles followed by the reporting entity and the methods of applying those principles. Examples of disclosures by a business enterprise commonly required with respect to accounting policies include those relating to basis of consolidation, depreciation methods, amortization of intangibles, inventory pricing, and recognition of profit on long-term construction-type contracts. Financial statement disclosure of accounting policies should not duplicate details (for example, composition of inventories or maturity dates of long-term debt) presented elsewhere as part of the financial statements.

Answer 16

The correct answer is: B Explanation: Donated services are recognized as revenues if nonfinancial assets are created or enhanced, special skills are required that would otherwise be purchased, the value is measurable, and the entity controls the employment and duties of the service donors (similar to an employer-employee relationship). The work performed by the roofer meets these criteria and as such would be reported as an increase in both expenses and contributions.

Answer 17

The correct answer is: C Explanation: An entity's cash purchases and sales of investments considered as cash equivalents generally are part of the enterprise's cash management activities, and the details of those transactions need not be reported in a statement of cash flows.

Answer 18

The correct answer is: D Explanation: The amount of consolidated stockholders' equity at the date of purchase is equal to Beni's stockholders' equity of $1,250,000. The subsidiary's stockholders' equity accounts are eliminated through consolidation so that only the asset and liability accounts of the subsidiary remain to be combined with the parent company accounts.

Answer 19

The correct answer is: C Explanation: In cash-basis accounting, the effects of transactions and other events on the assets and liabilities of a business enterprise are recognized and reported only when cash is received or paid; while in accrual accounting, these effects are recognized and reported in the time periods to which they relate. Cash-basis accounting does not attempt to match revenues and the expenses associated with those revenues. If liabilities have a net decrease, then cash is assumed to have been used, and cash net income would be lower than accrual. The same logic holds true for the asset side. If current assets increase, cash was consumed, so cash net income is less than accrual. A short-cut method is to journalize the net change of each account, and plug the difference to cash, as follows: ``` Accounts payable 2,000 Prepaid Rent 300 Unearned revenue 200 Wages payable 100 Accounts receivable 800 Cash (plug) 1,200 Overall, net cash decreased by $1,200, so Cash Net Income is $1,200 less than Accrual Net Income; Accrual Net Income was $71,200. ```

Answer 20

The correct answer is: D Explanation: In the Statement of Cash Flows, the change in cash and cash equivalents is measured. Cash equivalents are short- term highly liquid investments that have both of the following characteristics: -Readily convertible to cash (highly liquid) and So near to their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only investments with an original maturity of 3 months or less from the purchase date qualify to be cash equivalents.In the given scenario, Mend Company's purchase of three-month US Treasury bill will ideally be not reported since it is an exchange of cash with a cash equivalent and as such there is no inflows or outflows of cash.Option (a) is in correct because operating activities includes inflows and outflows of cash related to the production of income from continuing operations, which is not the case here as it's an exchange of cash with a cash equivalent.Option (b) is incorrect because investing activities includes inflows and outflows of cash generally related to long term investments or non-current assets.Option (c) is incorrect because financing activities includes inflows and outflows of cash related to debt or equity.

Answer 21

The correct answer is: C Explanation: Selling expenses $141,500 Less allocated portion of depreciation expense [($16,500 - $15,000) / 3] ($500) Cash paid for selling expenses $141,000 *Accumulated Depreciation: Year 2: $16,500 Year 1: $15,000 We can calculate Depreciation for Year 2 = $1,500 i.e. Increase in Accumulated Depreciation ($16,500 - $15,000). As the question mentions one-third of depreciation expense is allocated to selling expenses. Total Depreciation in Selling Expenses = $1,500/3 = $500.

Answer 22

The correct answer is: C Explanation: Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income is divided into net income and other comprehensive income. An entity must classify items of other comprehensive income by their nature, in one of these classifications: foreign currency items, minimum pension liability adjustments, unrealized gains and losses on certain investments in debt securities, and gains and losses on cash flow hedging derivative instruments. All regular items of income and expense, including unusual and infrequently occurring items, are included in the determination of net income. The ordinary gain is already included in the net income amount that is given in this problem. Translation adjustments and unrealized holding gains and losses are reported in other comprehensive income (OCI). They are excluded from current earnings and should not be included in the determination of net income.

Answer 23

The correct answer is: C Explanation: When one company sells merchandise to an affiliate at a price above cost, the ending inventory of the buyer contains an element of unrealized gross profit. The gross profit is not realized to the economic entity until the inventory is sold to an unaffiliated company. The preparation of the consolidated financial statements requires that the unrealized gross profit is eliminated from inventory. Dean is not an affiliate of Clark because Clark cannot exercise significant influence over Dean year-end its investment (i.e., Clark only owns a 15% interest in Dean). Therefore, no elimination entry should be made for the transaction with Dean. Consolidated current assets before elimination entries $320,000 Less: Unrealized gross profit on intercompany inventory transfer to wholly-owned subsidiary [($60,000 / $240,000) × $48,000] (12,000) Consolidated current assets to be reported in consolidated balance sheet $308,000

Answer 24

The correct answer is: A Explanation: Disclosures for prospective financial statements should include summaries of both significant accounting policies and significant assumptions.

Answer 25

The correct answer is: C Explanation: Unrestricted cash from contributors is included in operating activities. Investing activities include the sale and purchase of investments and PP&E. With nonprofit orgfanizations, the description of cash flows from financing activities expands to include donor-restricted cash that must be used for long-term purposes.

Answer 26

The correct answer is: B Explanation: Once companies registered, the Securities Exchange Act of 1934 requires that companies file periodic reports to update financial information on their companies. The most common Exchange Act reports include Form 10-K (annual reports), Form 10-Q (quarterly reports) and Form 8-K (current reports).

Answer 27

The correct answer is: D Explanation: An operating segment is deemed to be a reportable segment if it meets one or more of the revenue, profit(loss), and assets tests. If an operating segment's revenue, including both sales to external customers and intersegment sales and transfers, is 10% or more of the combined revenue of all operating segments, it meets the revenue test. Lion, Monk, and Nevi each have more than 10% of combined revenues and are deemed to be reportable segments.

Answer 28

The correct answer is: A Explanation: Concepts Statement No. 3 describes the importance of the GASB’s independence for establishing communication principles in the reporting standards to support governments’ credibility and enhance comparability among external financial statements.

Answer 29

The correct answer is: B Explanation: Without any specific information provided about amounts on the acquisition date and reported net income you must infer the noncontrolling interest is worth 25% of Kidd’s net assets. Kidd’s net assets are $180,000 – $60,000 = $120,000. $120,000 × 25% = $30,000.

Answer 30

The correct answer is: C Explanation: Comprehensive income includes all changes in equity except those caused by owner investments or distributions to owners. Loss from discontinued operations is included in net income (a component of comprehensive income). Prior period error correction is a change in stockholders’ equity. Unrealized loss on investments in non-current marketable equity securities is a change in stockholders’ equity.

Answer 31

The correct answer is: A Explanation: Credit risk is the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract. An entity must disclose all concentrations of credit risk arising from all financial instruments. Group concentrations of credit risk exist if a number of counter parties are engaged in similar activities and have similar economic characteristics that would affect their ability to meet contractual obligations affected by changes in economic or other conditions. Market risk is the possibility that future changes in market prices may make a financial instrument less valuable or more onerous . An entity is encouraged,but not required,to disclose quantitative information about the market risks of financial instruments. There is no note disclosure for risk of measurement uncertainty here. Accounts receivable uses an allowance for doubtful accounts to account for uncertainty of collection. There is no off-balance sheet risk of accounting loss here. Off-balance sheet risk is the risk of accounting loss from a financial instrument that exceeds the amount recognized for the instrument in the balance sheet.

Answer 32

The correct answer is: C Explanation: The Form 10-Q is a report of a public company’s performance that must be filed quarterly with the SEC. It includes unaudited financial statements and provides a continuing view of the company's financial position during the year. In addition to the most recent quarter end balance sheet, a company is required to present the balance sheet for the end of the preceding fiscal year on the Form 10-Q..

Answer 33

The correct answer is: C Explanation: For convertible securities, use "If-converted method"- the calculation of diluted earnings per share (EPS) (assume anyone who "could convert" does so) for a company with convertible preferred stock or convertible bonds starts with basic EPS. For numerator, earnings are increased by the dividends or after-tax interest expense that would not have been due if the securities were converted to common stock at beginning of the year, which would be $952,500 ($352,500 + $600,000). Ref Summary Amount a Convertible bonds outstanding $5,000,000 b Stated interest rate 9% c Annual Interest paid on bonds (a x b) $450,000 d Amortization of discount on bonds $20,000 e Interest expense (c+d) $470,000 f Corporate income tax rate 25% g After tax interest expense {e x (1-0.25)} $352,500 h Net income $600,000 I Numerator for dilutive EPS (g+h) $952,500 Option (A) is incorrect because the interest expense is deducted from net income, instead of adding it to NI and after-tax expense impact is not considered. [$130,000 = $600,000 - $470,000]. Option (B) is incorrect because the interest expense is deducted from net income, instead of adding it to NI. {$247,500 = $600,000 - [$470,000 x (1- 25%)]}. Option (D) is incorrect because the interest expense should be added after tax to NI. [$1,070,000 = $600,000 + $470,000.

Answer 34

The correct answer is: C Explanation: Unrestricted resources may be appropriated or designated by the governing board for special uses. The board nevertheless has the authority to rescind such actions. Therefore, board-designated assets should be accounted for as part of unrestricted assets. The pure endowment grant is accounted within restricted assets.

Answer 35

The correct answer is: C Explanation: The Codification includes Securities and Exchange Commission (SEC) content for reference by public companies. It does not include guidance for Other Comprehensive Basis of Accounting (OCBOA), Regulatory Accounting Principles (RAP) or governmental accounting standards.

Answer 36

The correct answer is: D Explanation: Cash flows from financing activities include issuing debt or equity. Proceeds from issuing or payments for retiring bonds. Issuance or re-acquisition of stock or treasury stock. Borrowing or repaying of loan. Dividends paid to shareholders. Bank overdrafts which are excluded from cash. Payments to retire mortgage notes and dividend payments will be considered as out flow under financing activities.Interest payments on mortgage notes will be considered as outflow from operating activities.Options (a), (b) & (c) are incorrect based on the above explanation.

Answer 37

The correct answer is: C Explanation: In the year of transition to IFRS, an entity must present provide supplementary explanations necessary for understanding the transition to IFRS. IFRS 1 does not require a first-time adopter to publish interim financial reports in advance of an entity’s first IFRS financial statements. IAS 8 does not apply to the changes in accounting policies an entity makes when it adopts IFRS or to changes in those policies until after it presents its first IFRS financial statements. Also, if the first-time adopter uses a deemed cost in its opening IFRS statement of financial position in its separate financial statements for an investment in a subsidiary, associate, or jointly controlled entity, those separate financial statements are required to disclose the aggregate deemed cost of those investments.

Answer 38

The correct answer is: C Explanation: An entity’s first IFRS financial statements shall include at least three statements of financial position, two statements of profit or loss and other comprehensive income, two separate statements of profit or loss (if presented), two statements of cash flows, and two statements of changes in equity and related notes. The Statement of Retained Earnings is only a US GAAP statement.

Answer 39

The correct answer is: C Explanation: Assets carried at cost (e.g., property, plant, and equipment) may be carried at their fair value at the opening IFRS balance sheet date. Fair value becomes the "deemed cost" going forward under the IFRS cost model.

Answer 40

The correct answer is: D Explanation: Under IFRS, LIFO is prohibited; under U.S. GAAP it is an acceptable costing method. Under both U.S. GAAP and IFRS, the primary basis of accounting for inventory is cost. The cost of inventory includes all direct expenditures to ready inventory for sale, but excludes selling and storage costs. Inventory is carried at the lower of cost or market with any write-downs of inventory to the lower of cost or market creating a new cost basis; however, under IFRS, previously recognized impairment losses can be reversed, up to the amount of the original impairment loss, when the reasons for the impairment no longer exist.

Answer 41

The correct answer is: A Explanation: The date of transition is the beginning of the earliest period for which comparative information is presented, which is January 1, Year 1.

Answer 42

The correct answer is: B Explanation: When one company sells merchandise to an affiliate at a price above cost, the ending inventory of the buyer contains an element of unrealized gross profit. The gross profit is not realized to the economic entity until the inventory is sold to an unaffiliated company. The unrealized gross profit in inventory must be eliminated in the preparation of consolidated financial statements. The amount of unrealized intercompany profit in ending inventory that should be eliminated for the consolidation in question is determined as follows: King's 12/31 inventory acquired from Lee ($100,000 × 50%) $50,000 Lee's gross profit percentage × 40% Unrealized intercompany profit in King's 12/31 inventory $20,000

Answer 43

The correct answer is: A Explanation: The income statement of a business enterprise for current and prior periods shall report the results of operations of the component in discontinued operations in the period(s) in which they occur. Alpha's following year operating loss $500,000 Applicable income tax benefit ($500,000 × 30%) (150,000) Loss on disposal, net of income taxes $350,000

Answer 44

The correct answer is: D Explanation: The correct answer is (D) Basic EPS = Income available to common shareholders/Weighted average number of common shares outstanding. The shares sold must be prorated for the portion of the year they were outstanding. Since the financial statements for Year 1 are being issued on March 1 Year 2, after the 2 for 1 stock split on February 15 of Year 2, the split will be treated as if it had occurred at the beginning of the earliest period presented which is Year 1. In computing WACS, retroactive application is given to stock splits and stock dividends. WACS is computed as follows: Common Stock Outstanding Total Number Weighted Shares O/S Shares Outstanding Beginning balance year = 100,000 100,000 Issued 30,000 shares for cash, Apr 1, Year 1 = (30,000) x (9/12) 22,500 Shares outstanding before stock split 122,500 50% Stock dividend, Jun 1, Year 1 = 122,500 x 150% 183,750 2 for 1 stock split Feb 15, Year 2 = (183,750) x 2 367,500

Answer 45

The correct answer is: D Explanation: FASB Statements of Financial Accounting Concepts are not part of the FASB Accounting Standards Codification. FASB Statements, Technical Bulletins, and Interpretations are part of the FASB Accounting Standards Codification.

Answer 46

The correct answer is: C Explanation: When treasury stock is acquired, total stockholders' equity decreases by the cost of the treasury shares, regardless of the method used to account for the treasury stock. The book value per common share is computed by dividing total stockholders' equity applicable to common stock by the number of common stock shares outstanding. The acquisition of treasury shares at a price less than their book value will reduce both the numerator and denominator of the book value ratio; however, the reduction of the numerator is less than the amount that was in there for these shares. Therefore, the excess book value for those shares would now be spread over the remaining common shares outstanding, resulting in an increase in the book value per common share.

Answer 47

The correct answer is: C Explanation: The correct answer is (C). Entities are required to classify net assets based upon the existence or absence of donor-imposed restrictions. Net assets are classified into two categories: Net Assets with donor restrictions and Net Assets without donor restrictions. Contributions with donor-imposed restrictions are reported as restricted support. Restricted support increases Net Assets with donor restrictions. Note: The $100,000 received as a contribution to fund scholarships for medical students is permanently restricted and will be classified as Net Assets with Donor Restrictions, whereas the $15,000 from interest is also temporarily restricted to award scholarships and will be classified as Net Assets with Donor Restrictions. When the amount is expended to award scholarships, then it is reclassified from Net Assets with Donor Restrictions to Net Assets without Donor Restrictions

Answer 48

The correct answer is: C Explanation: The correct answer is (C). A preferred dividend on the cumulative preferred stock is deducted from the net income or added to the net loss regardless of the fact it’s declared or not. The dividends on the non-cumulative preferred stock have been declared but not paid. So, the dividends on the noncumulative preferred stock should be added to the net loss. Therefore, the current year dividends on the cumulative preferred stock (current year only) and noncumulative preferred stock should be added to the net loss.  (A) is incorrect because dividends in arrears for cumulative preferred shares should not be added to the net loss when not declared. The dividends on noncumulative shares should be included when declared in a net loss.  (B) is incorrect because the current year dividends for cumulative preferred shares are added to a net loss.  (D) is incorrect because the current year dividends should be included in net loss for non-cumulative preference shares and for cumulative preference shares

Answer 49

The correct answer is: A Explanation: In the consolidated balance sheet, the machine's cost must be based upon the original cost of the machine to the initial buyer. Therefore, the machine is reported at its cost to the consolidated entity of $1,100,000.

Answer 50

The correct answer is: D Explanation: The primary function of accounting is to provide quantitative useful information, based on the needs of the users. The objective of general purpose financial reporting for business enterprises is not based on generally accepted accounting principles, reporting on management's stewardship, or the need for conservatism.

Answer 51

The correct answer is: C Explanation: Abbey's patient service is determined by subtracting the charity care from the patient service revenue that would have been recorded at Abbey's established rate for all health care services provided (i.e.,$6,000,000 - $1,000,000 = $5,000,000). Charity care is not included in patient service revenues because these services were provided free of charge and, thus, were never expected to result in cash flows. On the other hand, the discounts to third-party payors are reported as deductions from patient service revenues to determine net patient service revenue. Note that the amount that would be reported as net patient service revenue is $4,500,000 (i.e., $5,000,000 - $500,000).

Answer 52

The correct answer is: A Explanation: The excess of proceeds over cost of treasury stock sold, accounted for using the cost method, is credited to an appropriately titled Paid-In Capital account , such as Additional Paid-In Capital From Treasury Stock Transactions . Income since incorporation $420,000 Less: Cash dividends (130,000) Less: Property dividends ( 30,000) Retained earnings, 12/31 $260,000

Answer 53

Beg RE + Net Income- Cash Dividends- Stock Dividends = Retained Earnings

Answer 54

Answer is: A Explanation: The classified Statement of Financial Position only requires the classifications of current and non-current. Asset and liabilities are both divided into these two classifications. Options (B), (C) and (D) are incorrect as per above explanation.

Answer 55

Explanation: The correct answer is Option (A). Earnings per share (EPS) refers to the amount of earnings attributable to each share of common stock. Publicly-held companies required to present basic EPS and dilutive EPS on: Face of the statement of income for: Income from continuing operations Net income. Either the face of statement of income or in notes to the financial statements for: Discontinued operations. Options (B), (C) and (D) are incorrect based on the above explanation.

Answer 56

Answer is: B Explanation: Earnings per share (EPS) is computed by dividing net income less preferred stock dividends by the weighted average shares of common stock outstanding. Diluted EPS adjusts this calculation to reflect all potentially dilutive securities. To compute diluted EPS for this question, the convertible securities are assumed to have been converted at the beginning of the year. The preferred stock dividend of $30,000 (10,000 × $3) is added back to the numerator (canceling out its original subtraction) and the 20,000 shares of converted common stock are added to the denominator. The bond interest expense, net of tax, of $56,000 [($1,000,000 × 8%) × (1 - 30%)] is added back to the numerator and the 30,000 shares of converted common stock are added to the denominator. Diluted EPS = $850,000 Net income + $56,000 Bond interest (net of tax) = $5.66 110,000 (CS) + 20,000 (conv. PS) + 30,000 (conv. bonds)

Answer 57

Answer is B Explanation: Only that portion exceeding the fair market value of a benefit to the contributor is included in contribution revenue. ($150 - $50 = $100).

Answer 58

Answer is A Explanation: The cash account at 6/30 is increased by $20,000; the $30,000 of checks, less the $10,000 overdraft, written to vendors and recorded on 06/29 but not mailed until after the balance sheet date on 07/09. The land held for resale is reported as a current asset at 06/30 since it was sold for cash prior to the date the financial statements were issued. ``` Cash 20,000 Accounts receivable, net 35,000 Inventory 58,000 Prepaid expenses 12,000 Land held for resale 100,000 Total current assets $225,000 ```

Answer 59

Answer is D Explanation: Other Revenue of a healthcare entity is the usual day-to-day revenue not derived from patient care and services. It includes (1) proceeds from cafeteria meals sold, (2) revenue from educational programs, and (3) revenue from miscellaneous sources, such as from gift shops and parking lots. The proceeds from the sale of cafeteria meals do not offset dietary service expenses. Patient service revenues consist of revenue from routine services (e.g., room, board, and general nursing), other nursing services (e.g., operating, recovery, and delivery rooms), and professional services (e.g., physicians’ care, lab work, and pharmacy).

Answer 60

Answer is A Explanation: Goodwill is the excess of the investment cost, plus the fair value of any noncontrolling interest, over the fair value of the identifiable net assets (INA) acquired. Purchase price 300,000 Current assets $ 40,000 Plant and equipment, net ($380,000 + $60,000) 440,000 Fair value of identifiable assets $480,000 Less: Liabilities assumed 200,000 Fair value of the INA acquired 280,000 Goodwill $ 20,000

Answer 61

Answer is A Explanation: When the terms of a gift are met, the assets and net assets are reclassified, increasing unrestricted net assets. With the concurrent use of the assets, unrestricted net assets decreases.

Answer 62

Answer is A xplanation: Functional Classification of Expenses: Program Services (further the mission of the organization - emergency relief, research, community services, public health, and education). Supporting Services (secondary to the mission) Fundraising expenses and G&A expenses. G&A - Marketing, tax preparation, printing annual report, business management, budgeting. Fund Raising - Print & mail pledge cards, maintaining donor list, merchandise sent to potential contributors, salaries of fundraisers. Option (b) is incorrect because membership dues are part of revenues, not functional expenses. Option (c) and (d) are incorrect as per the above explanation.

Answer 63

D Explanation: Expenses of nonprofit organizations are reported in two categories: (1) program services and (2) support services. Program services are related directly to the primary missions of the nonprofit organization. A labor union would report the cost of labor negotiations under the classification of program services. Support services do not relate to the primary missions of the nonprofit organization and include such costs as management and general administration, membership development, and fund-raising.

Answer 64

Answer is B Explanation: Not-for-profit organizations follow the FASB format of statement of cash flows which does not include a capital financing activities section. For not-for-profit organizations, the description of cash flows from financing activities is expanded to include certain donor-restricted cash that must be used for long-term purposes. Contributions for construction of a capital asset would not be included in the operating or investing activities section.

Answer 65

Answer is C Explanation: The voluntary health and welfare organization (VHWO) used an endowment fund to account for the certificate of deposit because the testator stipulated that the certificate be held until maturity and that the interest revenue be restricted for a special purpose (i.e., to be used to finance salaries for a preschool program). In 2000, the restrictions on the endowment fund principal lapsed (i.e., the certificate of deposit matured). Since the testator did not place any restrictions on the principal of the certificate, that amount was transferred to the current unrestricted fund. The board of trustees then adopted a formal resolution designating $40,000 of the proceeds of the certificate of deposit for the future purchase of equipment for the preschool program. Therefore, $40,000 should be reported in the current funds balance sheet as net assets designated by the governing board for the preschool program. The interest revenue is restricted per testator specifications for a special purpose. Therefore, it cannot be reported in the current funds balance sheet as net assets designated by the governing board for the preschool progra

Answer 66

Answer is A Explanation: The plant funds group for colleges and universities includes four subgroups: (1) unexpended plant funds, (2) funds for renewals and replacements, (3) funds for retirement of indebtedness, and (4) investment in plant. Thus, a college's plant funds group includes subgroups for (I) renewals and replacement funds and (II) retirement of indebtedness funds but not (III) restricted current funds.

Answer 67

Answer is C Explanation: An unconditional promise to give by the donor is recorded as revenue at fair value when the pledge is made after provision for allowance for the uncollectible amount. Pica anticipates collecting 90% of the contribution, 10% is an allowance for uncollectible and the rest 90% of $100,000 = $90,000 should be recorded as contribution revenue as of June 30. Option (a) and (d) are incorrect because contribution revenue should be accounted for on an accrual basis less allowance for uncollectible. Option (b) is incorrect because the receipt of $10,000 is also deducted

Answer 68

Explanation: The correct answer is (D). Fundraising expenses would be appropriately classified as a support activity expense in its statement of functional expense. Supporting activities generally include fundraising costs, administrative services, and membership development expenses. The statement of functional expenses, which is prepared by voluntary health and welfare organizations, is a two-dimensional report which reports only expenses classifying them into functional categories of program expenses and support service expenses. Program expenses are services that relate directly to the organization's mission. Support service expenses are expenses related to management and general activities of the organization, its fundraising activities and membership development activities. The fund-raising costs of Kind Nurses Assoc. are recorded as support activity expenses in the statement of functional expense. (A) is incorrect because a nurse’s mileage expenses are not support activities. These are program expenses. Program expenses are directly related to an organization's mission. Kind Nurses Assoc. is paying its nurses to visit the homes of elderly people and pays reimbursement for mileage expenses making it program expenses (B) is incorrect because Payment for nurses'employee benefits is not a support activity. It is a program expense. Payment for a nurse’s employee benefits is part of the normal compensation and benefits process. (C) is incorrect because payments for a nurse’s supplies are also part of program services.

Answer 69

Answer is A Explanation: An Endowment is funds donated for which a donor or external agency has specified that the principal remain intact in perpetuity (i.e., the principal is nonexpendable).

Answer 70

Answer is A Explanation: Multi-year pledges: Net assets with donor restrictions to be reported at present value. $20,000 received in the current year is revenue recognized without donor restrictions. Pledges to be received in future is revenue with donor restrictions ($20,000 x 3.312 = $66,240). Option (b) is incorrect because $80,000 does not take the future pledge receivable at present value. Option (c) is incorrect because $86,240 includes current year pledge without donor restrictions received of $20,000. Option (d) is incorrect because the total pledge to be received over the multiple period from the donor, and includes pledge without donor restrictions and pledge with donor restrictions without consideration for present value of the dollar.

Answer 71

Explanation: The correct answer is (C). Net Assets without Donor Restrictions represent resources whose use is not restricted by donors. The $100,000 donation for general operations to be used at the discretion of the board of directors would increase Net Assets without Donor Restrictions. Contributions with donor-imposed restrictions are reported as Net Assets with Donor Restrictions. Restricted support increases Net Assets with Donor Restrictions net assets. The $250,000 for future repairs to the building and equipment, along with the $50,000 for special program services and the $100,000 donation to purchase investments to be held in perpetuity would increase Net Assets with Donor Restrictions net assets $300,000.

Answer 72

Answer is D Explanation: ($15,000 + $12,000 - $0) / 5 = $5,400.

Answer 73

Answer is A Explanation: There are separate functional classifications for expenditures "Institutional Support," "Scholarships and Fellowships," and "Operation and Maintenance of Plant." Therefore, the only expenditure in question that should be included in the functional classification "Institutional Support" is the one for administrative data processing.

Answer 74

Answer is A Explanation: Restricted net assets represent resources that must be maintained from unrestricted net assets. Restrictions may be imposed only by a donor. The governing board of an entity may earmark assets for specific purposes as long as these do not conflict with donor conditions. These assets may be designated board-restricted in the financial statements, but they remain in the unrestricted net asset category because the board of trustees could vote to do something else with the funds.

Answer 75

Explanation: The correct answer is (A). The appropriate characterization of net assets of a non-governmental not-for-profit organization is residual interest. Net assets of a non-governmental not-for-profit are defined to be the residual interest in the assets of the entity that remains after reducing its liabilities. (B) is incorrect because ownership interest means being entitled to the ownership and profits of the entity. NPOs do not operate for profits and net assets cannot be called ownership interest. (C) is incorrect because the donor makes a contribution by transferring assets to an NPO and the asset is used as per the instructions of the donor. The donor does not have any interest remaining in the asset unless the restrictions as set by the donor are not met. (D) is incorrect because as there are no owners in NPOs there is no equity ownership in NPOs

Answer 76

Answer is D Explanation: All applicable investments are required to be measured at fair value. Gains and losses on the investments are included in the statement of activities as increases and decreases, respectively, in net assets without donor restrictions unless the use of the securities is restricted by donors. Any dividends, interest, or other investment income are to be included in the statement of activities as earned. Such amounts would be reported as adjustments to Net assets without donor restriction sunless some donor restriction exists. The increase in net assets would be $115,000; the $100,000 equity securities received as an unrestricted gift, $10,000 gain on investment, and $5,000 in dividends received on these securities.Option (a) is incorrect because $100,000 does not include increases in fair value of the securities and dividend income on the securities. Option (b) is incorrect because $105,000 ignores increases in the fair value of the securities. Option (c) is incorrect because $110,000 does not include dividend income of $5,000.

Answer 77

Answer is D Explanation: As the volunteers perform services that Leer would not otherwise provide, Leer should not report the estimated value of donated services in the financial statements. Health care entities should report the estimated value of donated services in the statement of revenues and expenses of general funds if the services are significant (i.e., the services would be performed by salaried personnel if donated services were not available) and measurable and the entity controls the employment and duties of the service donors (i.e., there is the equivalent of an employer-employee relationship). The question states that the volunteers perform services that Leer would not otherwise provide and that Leer has no employer-employee relationship with these volunteers. Note, however, that if these relationships did exist, the services would be recorded at their fair value of $25,000 as both expense and contribution.

Answer 78

Explanation: The correct answer is (B). Net flows from financing activities include an inflow of $10,000 from the issuance of the company's bonds and an outflow of $5,000 from dividends paid. Thus, there is a net inflow of $5,000 from financing activity. Sale of equipment and purchase of stock of another company are cash flows from investing activities. A U.S. Treasury note is a cash equivalent. In the statement of cash flows, the change in cash and cash equivalent is measured. Thus, even though a purchase of a 3 month U. S. Treasury bill decreases cash, cash equivalents increase. There is no net change in the amount of cash and cash equivalents hence the transaction is not reported on the statement of cash flows. Income taxes paid and interest income received are cash flows from operating activities

Answer 79

Answer is A Explanation: Contributions received in advance of the year the donor intends them to be used—even if usable then for unrestricted purposes—are initially recorded in a "restricted support" account. They should be accounted for as support in the year the unconditional promise to give is made. The term "deferred" is no longer applied to donations in non-governmental nonprofit accounting.

Answer 80

Explanation: The correct answer is (D). Pledges to be received at a future date are recognized as Net Assets with Donor Restrictions i.e. restricted support as there is a time restriction with a corresponding debit to accounts receivable. If collection is doubtful, an allowance can be recognized for the same. Pledges to be used to build an addition to the kennel that would be received in 3 years would be recorded as restricted support with donor restrictions at its present value. JE: Pledge Receivable XXX [PV of $10,000] Net Assets with Donor Restrictions XXX [PV of $10,000]

Answer 81

Explanation: Under the cost method, treasury stock is recorded and carried at the acquisition cost of $20 per share. Cyan sold some of the shares for $5 per share more than the acquisition cost. This excess is credited to a Paid-In-Capital From Treasury Stock account and Retained Earnings is not affected. If Cyan sold any of the shares for less than the acquisition cost, the deficit would first be charged to any existing balance in the Paid-In-Capital From Treasury Stock account, and the excess, if any, would be charged against Retained Earnings . Retained Earnings, Dec. 31, previous year $300,000 Net Income 60,000 Retained Earnings, Dec. 31, current year

Answer 82

Explanation: Initially, the company should report the payment related to the licensing requirement as a noncurrent asset. The company will receive the monies back, provided it meets the requirements, so it is considered an asset. Because the refund period is in 5 years, not within one year, it is considered a noncurrent asset.

Answer 83

Explanation: The purpose of the IASB Conceptual Framework includes assisting, among others, the Board in the development of future IFRS, preparers of financial statements in applying IFRS, and auditors in forming an opinion on whether financial statements comply with IFRS.

Answer 84

Explanation: A nongovernmental not-for-profit organization should measure and report its investments in the financial statements at fair value. Gains and losses on the investments are included in the statement of activities as increases and decreases, respectively, in net assets without donor restrictions unless explicitly restricted by the donor or law. Any dividends, interest, or other investment income are to be included in the statement of activities as earned.Option (a), (b) and (d) are incorrect as per the above explanation.

Answer 85

Explanation: The correct answer is (B). Tests for reportable segments: 10% Threshold Tests - A segment is reportable if it contributes at least 10% of the overall total of one or more of the following - (1) Revenue, (2) Profit or loss, (3) Assets. 75% test for Consolidated Revenues only. Revenues of at least 10% of total revenues for all reported operating segments = $95,000 / $1,000,000 = 9.5% Profit or loss of at least 10% of the combined profit or loss for all operating segments = $10,000 / $90,000 = 11% Assets of at least 10% of the combined revenues, profit or loss, or assets for all operating segments = $10,000 / $10,000,000 = 9% The profit test shows that Sun’s profits are > 10% of total profits. Sun is a reportable segment.

Answer 86

Explanation: For financial statement purposes, only donors can restrict revenues or net assets. Management or the Board of Directors may earmark funds but are free to change their designations at any time.

Answer 87

D or B Maybe Explanation: In the period in which a component of an entity either has been disposed of or is classified as held for sale, the income statement of a business enterprise for current and prior periods shall report the results of operations of the component in discontinued operations in the period(s) in which they occur. Amounts reported in discontinued operations, include, the resolution of contingencies that arise from product warranty obligations and the settlement of employee benefit plan obligations (pension and other post-employment benefits), provided tha

Answer 88

C Explanation: An enterprise must report interest revenue separately from interest expense for each reportable segment unless a majority of the segment's revenues are from interest.

Answer 89

B Explanation: Earnings per share (EPS) is computed by dividing net income less preferred stock dividends by the weighted average shares of common stock outstanding. Diluted EPS adjusts this calculation to reflect all potentially dilutive securities. Since the computation of diluted earnings per share assumes all potentially dilutive convertible securities have been converted, Dunn's diluted earnings per share should be calculated based on the net income figure without deducting preferred dividends. The convertible preferred stock is assumed converted at the beginning of the year. The preferred stock dividend of $120,000 (20,000 × $100 × 6%) is added back to the numerator (canceling out its original subtraction) and the 100,000 (20,000 × 5) shares of converted common stock are added to the denominator. $840,000 Net Income = $2.80 200,000 Common + 100,000 Convertible preferred

Answer 90

Explanation: Gross Profit = Net sales - COGS ($500,000 - $100,000) = $400,000. Option (A) is incorrect because insurance expense, wages, accounts payable and interest payable have been included. Option (B) is incorrect because insurance expense, wages have been included. Option (D) is incorrect because it does not subtract the Cost of Goods Sold (COGS).

Answer 91

C Explanation: Basic earnings per share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of shares outstanding during the period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period they were outstanding. Stock dividends, stock splits, and reverse stock splits change the total number of shares outstanding but not the proportionate shares outstanding. For this reason, stock dividends, stock splits, and reverse stock splits are reflected retroactively for all periods presented. The weighted-average number of shares used to calculate basic EPS is 702,000. It's 100% of the 644,000 shares that have been outstanding all year (700,000 - 20,000 - 36,000), plus 3/12 of the 20,000 shares repurchased on March 31 (5,000), plus 11/12 of the shares repurchased on December 1 (33,000), and 50% of the 40,000 preferred shares converted at June 30 (20,000).

Answer 92

A Explanation: Treasury stock is the corporation’s common or preferred stock that has been reacquired by purchase, by settlement of an obligation to the corporation, or through donation. The cost method views the purchase and subsequent disposition of stock as one transaction. The treasury stock is recorded (debited), carried, and reissued at the acquisition cost. If the stock is reissued at a price in excess of the acquisition cost, such as in this situation, the excess is credited to an appropriately titled paid-in capital account. There are no gains or losses reported in the income statement for these transactions.

Answer 93

Explanation: Comprehensive income includes all the changes in equity during a period except those resulting from investments by owners & distribution to owners. Option (B) is incorrect because it pertains to statement of cash flows. Option (C) is incorrect because it pertains to segment reporting. Option (D) is incorrect because it also pertains to segment reporting.

Answer 94

A Explanation: The disclosure of accounting policies is considered an integral part of the financial statements. No specific disclosure format is required. A separate note, or a summary preceding the notes entitled Summary of Significant Accounting Policies is preferred. The accounting policy disclosures should identify and describe the principles and methods that materially affect the financial position and operations. Disclosure should include policies involving a choice of alternative acceptable policies, policies peculiar to the industry, and unusual applications of acceptable principles. Disclosure requirements include: criteria determining which investments are treated as cash equivalent; basis of accounting for loans and trade receivables; method of recognizing interest income on loan and trade receivables; depreciation methods; inventory pricing methods; methods of recognizing profit on long-term construction contracts; and basis of consolidation.

Answer 95

D Explanation: Fundamental qualitative characteristics of information are relevance and faithful representation. Information is relevant if it is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations. Components of relevance are predictive value, confirmatory value, or both. Reliability is not a characteristic of useful financial information. Timeliness is a characteristic that enhances the usefulness of information that is relevant and faithfully represented. Neutrality is a characteristic of faithful representation.

Answer 96

B Explanation: In the consolidated balance sheet, the machine's cost and accumulated depreciation must be based upon the cost of the machine to the consolidated entity. Likewise, consolidated depreciation expense must be reduced by the excess depreciation recorded by the purchasing affiliate. Since the machine's useful life on the date of sale is 3 years, Salem's depreciation expense must be decreased by 1/3, or 33-1/3%, of the gain for consolidated purposes.

Answer 97

A Explanation: The cost method of accounting for treasury stock views the purchase and subsequent disposition of stock as one transaction.

Answer 98

A Explanation: The starting point in IFRS 1 is an opening IFRS statement of financial position prepared at the date of transition to IFRS. The date of transition to IFRS is defined as the beginning of the earliest period for which an entity presents full comparative information under IFRS in its first IFRS financial statements. For entities that present one year of comparative information in their financial reports, the date of transition is the first day of the comparative period. In the given situation the company did present one year of comparative information so the transition date to IFRS would be January1, year 1, the first day of the comparative period.

Answer 99

Explanation: The correct answer is (D). $700,000 endowment received by the voluntary health and welfare organization would be classified as an increase in Net Assets with Donor Restrictions. Income of $50,000 and investment appreciation of $80,000 will also increase Net Assets with Donor Restrictions. So, total increase in Net Assets with Donor Restrictions is $830,000 [$700,000 + $50,000 + 80,000]. The actual $60,000 spent represents a decrease in Net Assets with Donor Restrictions. Hence, total changes in Net Assets with donor restrictions is $770,000 [$830,000 - $60,000].

Answer 100

A $1,950,000 is correct. Current assets are assets that are collectible within one year. The sum of the stated current assets is $2,500,000 ($550,000+$1,650,000+$300,000). However, once the current tax bill is calculated, the prepaid taxes of $300,000 are transferred into a tax expense account to cover the $300,000 in current year tax expense. In addition, $250,000 of the special accounts receivable is not due for over one year and is, therefore, non-current. Therefore, current assets should be $1,950,000 ($2,500,000-$300,000-$250,000).

Answer 101

C Explanation: The income generated from assets with donor restrictions may be spent and should be reported in net assets without donor restrictions unless explicitly restricted by donor or law (in which case,would be reported under assets with donor restrictions). Option (a), (b) and (d) are incorrect as per the above explanation.

Answer 102

A Explanation: Donations received in cash will increase the assets as well as increase liabilities as they are payable to another NFP. Option (B) is incorrect because donation increases liability as pledged to another NFP and does not increase the revenue. Option (C) is incorrect because donation increases liability as pledged to another NFP and does not increase the deferred revenue. Option (D) is incorrect because assets will increase and liabilities will increase; and fund balance will not decrease.

Answer 103

A Explanation: Basic EPS is computed by dividing income available to shareholders (IAC) by the weighted average number of shares outstanding during the period. Weighted average number of shares is (300,000 × 12/12) + (50,000 × 6/12) = 325,000.

Answer 104

C Explanation: For unusual or infrequent Items, there are two options for reporting: Income Statement (above Income from Continuing Operations) Footnotes to Financial Statements Unusual or infrequent Items get Retrospective or Prospective treatment in the financial statements.

Answer 105

B Explanation: Unrealized holding gains and losses for AFS debt securities are excluded from earnings and reported in other comprehensive income until realized. Any changes in the Market Adjustment account would have no effect on net income.

Answer 106

Explanation: The correct answer is (A). Faithful representation is a primary qualitative characteristic of financial statements and consists of the following three ingredients: Error free (no errors/omissions). Neutrality (no bias). Completeness (complete). Faithful representation is the characteristic that suggests that information is reasonably free from error and bias.

Answer 107

B Explanation: Other revenues of a health care entity are the usual day-to-day revenues that are not derived from patient care and services, and generally, include (1) proceeds from the sale of cafeteria meals, (2) revenue from educational programs, and (3) revenues from miscellaneous sources, such as revenue from gift shops and parking lots.

Answer 108

Explanation: The correct answer is (A). As per the US GAAP, FASB conceptual framework, the primary or fundamental qualitative characteristics of accounting and reporting are Relevance and Faithful Representation. Relevance Predictive value Confirmatory value Materiality Faithful Representation Freedom from error Neutrality Completeness Thus, relevance is a fundamental qualitative characteristic. The enhancing qualitative characteristics are comparability, understandability, timeliness, and verifiability.

Answer 109

C Explanation: Governmental financial reporting is used in making social and political decisions. Because interperiod equity is important, financial reporting should help users assess whether current-year revenues are sufficient to provide current services or whether future taxpayers are assuming the burden of previously provided services.

Answer 110

Explanation: Investing activities include the following:Principal collections or loans made by the entity (interest and dividends received are operating). Acquisition or disposal of Available-for-Sale (AFS) debt securities or Held-to-Maturity (HTM) investments (not trading). Acquisition or disposal of PP&E and intangibles.The net cash from investing activities is reported at $65,000 Ref Cash flows from investing activities Change a Purchases, sales and maturities of HTM $25,000 b Purchases, sales and maturities of AFS debt securities 40,000 c Net cash provided (used) by investing activities (a+b) $65,000 Option (a) is incorrect because net cash inflow from investing activities is reported at $65,000.Option (b) is incorrect because it does not include cash inflow from AFS debt Option (c) is incorrect because it does not include cash inflow from HTM securities.

Answer 111

A Explanation: Reportable segments include operating segments that exceed the quantitative thresholds. An enterprise shall report separately information about an operating segment that meets any of the following three quantitative thresholds: (1) its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segments, (2) the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of (a) the combined reported profit of all operating segments that did not report a loss or (b) the combined reported loss of all operating segments that did report a loss, or (3) its assets are 10% or more of the combined assets of all operating segments.

Answer 112

C- General Explanation: Healthcare entities have only two categories of funds: (1) the general funds and (2) the donor-restricted funds. The general fund is used to account for all assets and liabilities that are not required to be accounted for in a donor-restricted fund. Since the bonds in question were issued for the hospital’s benefit and are unrelated to any donor-restricted assets, they should be accounted for in the general fund. Both enterprise funds and the general long-term debt account group are utilized by state and local governments rather than by nonprofit healthcare entities .Specific purpose funds are a type of donor-restricted funds that are used to account for resources restricted by donors and grantors for specific operating purposes.

Answer 113

B Explanation: If no profit and loss sharing arrangement is specified in the partnership agreement, the RUPA requires that profits and losses be shared equally.

Answer 114

B Explanation: Financial disclosures for SEC filings are referred to as the Basic Information Package (BIP). BIP requirements are common to 10-K and to the annual report to shareholders. Two-year comparative financial information is not commonly considered to be part of the BIP. The BIP does consist of five-year comparative selected financial data, management’s discussion and analysis of the financial condition and results of operations, and data explaining the circumstances applicable to a change in the registrant’s independent accountant during the prior two years

Answer 115

B Explanation: Functional Expenses for Support Services: $450,000 = ( $250,000 + $200,000); fundraising and management & general expenses qualify as support services. Supporting Services:- (secondary to the mission) - Fundraising expenses and G&A expenses. Fund Raising: Print & mail pledge cards, maintaining donor list, merchandise sent to potential contributors, salaries of fundraisers. Option (a) is incorrect because $350,000, is the sum of education and research expense which are functional expenses for program services. Option (c) is incorrect because education expense which is a program service is included and fundraising expenses are excluded which are expenses for support services. Option (d) is incorrect because program services functional expenses of $350,000, which is the sum of education and research is included, which should be excluded.

Answer 116

B- Its an integral part of F/S Explanation: Disclosure of all significant accounting policies in an enterprise’s financial statements is required. Thus, disclosure of accounting policies is an integral part of the financial statements. Disclosures should not be limited to principles and methods peculiar to the industry in which it operates, but instead include policies involving a choice of alternative acceptable polices, policies peculiar to that particular industry, and unusual applications of acceptable principles. There is no specific required format and location of accounting policy disclosures. Financial statement disclosure of accounting policies should not duplicate details presented elsewhere as part of the financial statements.

Answer 117

C Explanation: Financial statements shall not report an amount of cash flow per share. The conversion of debt to equity is a noncash financing activity because the transaction affects the enterprise's liabilities but it does not result in cash receipts or payments during the period. The conversion of debt to equity should be disclosed as supplemental information in the statement of cash flows.Options (a), (b) and (d) are incorrect as per above explanation.

Answer 118

B Explanation: The asset accounts in the Investment in Plant subgroup of the Plant Funds group of a college contain the carrying amounts of the institution’s fixed assets. Therefore, the equipment would be reported in the Investment in Plant subgroup of the Plant Funds group of the college. The fuel inventory for the college’s power plant should be reported in the Unrestricted Current Funds under Inventory of Materials and Supplies.

Answer 119

A Explanation: The contributions to the building fund are included as support in the statement of activities of a voluntary health and welfare organization.

Answer 120

A Explanation: The amount of cash paid for income taxes is determined as follows: ``` Income tax expense $20,400 Add: decrease in income taxes payable ($27,100 - $21,000) 6,100 Less: increase in deferred income taxes ($5,300 - $4,600) (700) Cash paid for income taxes $25,800Since income taxes payable decreased from the beginning to the end of the year, the amount of cash paid for income taxes is greater than income tax expense reported on an accrual basis by this amount. The increase in deferred income taxes is a noncash expense (i.e., it increases income tax expense but has no affect on cash), therefore, it is subtracted from income tax expense to determine the amount of cash paid for income taxes. ```

Answer 121

C Explanation: A new Financial Accounting Standards Board (FASB) standard is issued only after a majority vote by the members of FASB. The emerging issues task force assists the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the framework of existing authoritative literature. It does not approve a discussion memorandum before it is disseminated to the public. A discussion memorandum is prepared before any deliberations on a new major project and thus before any exposure draft. FASB standards are not rescinded by the AICPA member's votes.

Answer 122

C Explanation: Advances from related parties, like other advances, should be reflected in the statements as financing activities, and repayments of the advances should also be reflected in the statements within the financing section.

Answer 123

A Explanation: Cash flows from investing activities include 1) making and collecting loans (excluding those acquired specifically for resale), 2) acquiring and disposing of property, plant and equipment, and other productive assets, and 3) purchases, sales, and maturities of debt and equity securities (excluding those acquired specifically for resale. Borrowing money and repaying amounts borrowed, or otherwise settling the obligation represents cash flows from financing activities. Polk should report $3,000 in investing activities and $27,000 in financing activities. Options (b), (c) and (d) are incorrect as per the above explanation.

Answer 124

C Explanation: All nongovernmental nonprofit organizations must record depreciation on most long-lived tangible assets.

Answer 125

I DONT KNOW C Explanation: Rule 201 of Regulation S-T provides a temporary hardship exemption for electronic filers, generally for unanticipated technical difficulties in submitting an electronic document. The exemption may be appropriate, for example, for a particular document that a filer is unable to file electronically because of problems with the filer’s computer equipment that had been used previously to transmit either test or required electronic filings successfully.

Answer 126

D Explanation: The summary of significant accounting policies should disclose policies involving a choice of alternative acceptable polices, policies peculiar to that particular industry, and unusual applications of acceptable principles. This includes revenue recognition policies. The disclosure of accounting policies should not duplicate details presented elsewhere as part of the financial statements. Descriptions of transactions, summaries of debt, and schedules of assets are not policies and are located elsewhere in the financial statements.

Answer 127

C Explanation: If the percentage of stock owned is greater than 50%, consolidated financial statements should be reported. Bard Co., owns Stock in Brock Co., Porter Co., and Nortin Co. greater than 50%, hence the liabilities should be consolidated and reported at $16,000,000 ($4,000,000+$7,000,000+5,000,000). Option (A) is incorrect because $5,000,000 is only Nortin Co'. liabilities where Brad co. has 100% ownership. It should also include Brock Co. and Porter Co.'s liabilities. Option (B) is incorrect because $12,000,000 is the liability for Nortin Co and Porter Co., Brad Co. should also include Brock Co.'s liabilities. Option (D) is incorrect because $18,000,000 includes Harlson Co.'s liabilities which should be excluded in the consolidated balance sheet as the ownership is less than 50%.

Answer 128

C Explanation: U.S. state and local governments reflect the federal system of three branches of government plus the separation of powers. The essential mission of government is delivering services, financed with taxes.

Answer 129

D Explanation: These transactions represent transfer of non-cash activity. Neither the receipt of property as a dividend nor the distribution of merchandise as holiday bonus to employees, involves the receipt or use of cash. This will be regarded as a non cash activity and neither of the transactions would be reported by Deed Co. in its in its statement of cash flows.Options (a), (b) and (c) are incorrect based on the above explanation. These are non cash activities and will not be shown as inflows or outflows under operating, investing or financing activity sections.

Answer 130

A ZERO Explanation: In the period in which a component of an entity either has been disposed of or is classified as held for sale, the income statement of a business enterprise for current and prior periods shall report the results of operations of the component...in discontinued operations in the period(s) in which they occur.

Answer 131

A Explanation: Gain on disposal of business segments will be reported as discontinued operations and foreign currency translation gains will be reported in other comprehensive income. Therefore, neither of the items will be reflected in income from continuing operations. Option (B) is incorrect because it will be a part of other comprehensive income. Option (C) is incorrect because it should be reported as a discontinued operation. Option (D) is incorrect as per the above explanation.

Answer 132

D Explanation: In hospital accounting, restricted funds account for financial resources that are externally restricted by donors and grantors for specified operating or research, capital outlay, or endowment purposes. The board of directors of a hospital cannot remove restrictions on the use of financial resources imposed by donors and grantors. While unrestricted resources may be appropriated or designated by the governing board of a hospital for special uses, the board nevertheless has the authority to rescind such actions. Therefore, board-designated assets of a hospital are accounted for in the General Fund.The income generated by a restricted fund may or may not be available for current operating use, depending upon the restrictions imposed upon such income by the donor or grantor.

Answer 133

A Explanation: If an entity’s functional currency is the foreign currency, and it has not experienced significant inflation, translation adjustments result from the process of translating that entity’s financial statements into the reporting currency. Translation adjustments (gains or losses) are not included in net income, but in other comprehensive income.

Answer 134

D Explanation: Financial and managerial accounting both provide information useful for decision making. Besides differences in primary user, external for financial and internal for managerial, financial accounting must follow generally accepted accounting principles (GAAP), whereas managerial accounting does not. Option (A) is incorrect because financial accounting is generally more precise than managerial accounting. Option (B) is incorrect because financial accounting has a past focus rather than managerial accounting. Option (C) is incorrect because the emphasis in financial accounting is relevance whereas the emphasis in managerial accounting is timeliness.

Answer 135

A Explanation: If an exam question does not specify that a debt or equity investment is a cash equivalent or classed as a trading security, then the cash flows from the purchase, sale, or maturity should be classed as cash flows from investing activities. Purchase of bond investment $180,000 Proceeds from sale of equipment (10,000) Net cash used in investing activities $170,000

Answer 136

C Explanation: Monetary unit assumption implies that the economic activity should be measured in money. Option (A) is incorrect because the going concern concept assumes that the entity will continue to operate in the foreseeable future. Option (B) is incorrect because periodicity means the economic activity being divided into meaningful time periods. Option (D) is incorrect because economic entity is defined as an identifiable set of activities.

Answer 137

C Explanation: Purchasing power losses result from holding monetary assets during a period of inflation because the fixed amount of money will purchase fewer goods and services following a period of inflation. The holding of nonmonetary items during a period of changing prices does not give rise to purchasing power gains or losses.

Answer 138

B Explanation: Convertible debt is not included in the calculations of basic EPS. The interest expense is added back to net income in determining dilutive EPS.

Answer 139

Explanation: The correct answer is (D). Form 8 K is filed to report the material events such as Memorandum & Associations, changes in directors or CEO, other major changes in operations or status, changes in auditors, etc. The Form 8-K is required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. The following are required to be reported to the SEC via Form 8-K: The creation of an obligation under an off-balance sheet arrangement of a registrant. The unregistered sale of equity securities. A change in a registrant's certifying accountant. Quarterly results of operations and financial condition of a registrant are not reported via Form 8-K. Form 10-Q is filed by the issuers quarterly that contains the unaudited Financial Statements. (A), (B) and (C) are incorrect because all these events will be reported to the Securities and Exchange Commission (SEC) on Form 8K.

Answer 140

Explanation: The correct answer is (C) To calculate the basic earnings per share, the weighted average number of shares of common stock outstanding is used as the denominator. The shares sold must be prorated for the portion of the year they were outstanding. The weighted average number of shares can be calculated as under: Particulars Number of shares Opening 10,000 Shares issued during the year 4,000 Adjust for remaining period of the year: 4,000x9/12 3,000 Weighted average no. of shares 13,000

Answer 141

A Explanation: A first time adopter of International Financial Reporting Standards (IFRS) will need to apply IFRS 1, First time adoption of International Financial Reporting Standards. The overriding principle of IFRS 1 is full retrospective application of all IFRS standards. The entity’s first set of financial statements would include three Balance Sheets: Opening IFRS Balance Sheet. Comparative Balance Sheet (at least 2) Options (B), (C) and (D) are incorrect as per the above explanation.

Answer 142

C Explanation: When one company sells merchandise to an affiliate at a price above cost, the ending inventory of the buyer contains an element of unrealized gross profit. The gross profit is not realized to the economic entity until it is sold to outsiders. The preparation of the combined balance sheet requires that the unrealized gross profit is eliminated. The inventory reported on the combined balance sheet is determined as follows: Inventory acquired from outside parties ($125,000 + $25,000) $150,000 Bix inventory acquired from Ash: Cost to Bix $30,000 Less unrealized intercompany profit ($30,000 × 20%*) ($6,000) $24,000 Inventory reported on combined balance sheet $174,000 * Intercompany profit margin determined as follows: Cost of shipments - Bix $100,000 100% Cost of shipments - Ash ($80,000) 80% Intercompany profit $20,000 20%

Answer 143

A Explanation: Concepts Statement No. 3 describes the importance of the GASB’s independence for establishing communication principles in the reporting standards to support governments’ credibility and enhance comparability among external financial statements. Performance standards are outside the scope of the GASB mission. Key measures will vary from one governmental entity to another and cannot be addressed by accounting standards. The GAO does not provide oversight for state and local governments.

Answer 144

Explanation: The correct answer is (A). Form 10-Q reports would be a report that a company would file to meet the U.S. Securities and Exchange Commission's requirements for unaudited, interim financial statements reviewed by an independent accountant.

Answer 145

d Explanation: No portion of the $50,000 of freight costs on the intercompany inventory transfer is reported as selling expense in the consolidated income statement. Although this expense is "freight-out" to Pard, for consolidated purposes, it is not freight-out to a buyer. It is part of the inventory cost and when the related goods are sold, these freight costs will increase the amount reported as cost of goods sold in the consolidated income statement.

Answer 146

A Explanation: In order to compute the net cash used in investing activities, the proceeds Karr received from the sale of the equipment must be computed. The carrying amount of the equipment sold was $13,000 (i.e., $25,000 cost minus $12,000 accumulated depreciation). Since the sale resulted in $5,000 gain, the proceeds Karr received from the sale were $18,000 (i.e., $13,000 carrying amount of equipment plus $5,000 gain recognized). Karr reports the $18,000 proceeds from the sale of the equipment as a cash inflow due to an investing activity in the statement of cash flows. In addition, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000. Since this transaction is part cash and part noncash, only the cash portion is reported in the statement of cash flows. Karr reports the $20,000 paid at the time of purchase to acquire the equipment as a cash outflow due to an investing activity. Cash paid for purchase of equipment $ 20,000 Less:Proceeds from sale of equipment (18,000) Net cash used in investing activities $ 2,000

Answer 147

C Explanation: Nongovernmental nonprofit organizations, including voluntary health and welfare organizations (VHWOs), use the accrual basis of accounting for all external reporting purposes.

Answer 148

D Explanation: Under the direct method (direct cash approach) - Cash sources and uses related to each account in income from continuing operations are listed individually. Under the indirect method (reconciliation approach) - Income from continuing operations is reconciled to net cash flows from operating activities. When applying the indirect method, begin with net income and make three types of adjustments: Non-cash items are adjusted. Non-operating items are adjusted. Changes in balances of accrual related accounts are adjusted. Both the direct and indirect are acceptable methods, but if the direct method is used, the indirect method must be presented as a supplementary schedule to present a reconciliation of net income to net cash flows from operating activities. A reconciliation of ending retained earnings to cash flows from operating activities is not presented. Options (a), (b) and (c) are incorrect based on the above explanation. All these are disclosed on the statement of cash flows when prepared under the direct method, either on the face of the statement or in a separate schedule.

Answer 149

B Explanation: Fundamental qualitative characteristics of information are relevance and faithful representation. Information is relevant if it is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations. Components of relevance are predictive value, confirmatory value, or both. Information is faithfully represented if it represents what it purports to represent.Components of faithful representation are that it is complete, neutral, and free from error. Enhancing qualitative characteristics include: comparability, verifiability, timeliness, and understandability. These characteristics enhance the usefulness of information that is relevant and faithfully represented.

Answer 150

D Explanation: Outstanding encumbrances cannot be reported as liabilities. Any encumbrance outstanding should be reported as part of the equity section of the balance sheet.

Answer 151

A- look at gross profit Explanation: Gross profit of Pare was $100,000 and the gross profit of Shel was $60,000. The total consolidated gross profit is reported to be only $154,000, which is $6,000 less than the combined individual gross profits of Pare and Shel (i.e. $100,000 + $60,000 = $160,000). Intercompany transactions are eliminated in consolidated statements, this $6,000 difference would represent the intercompany profits. Options (B), (C) and (D) are incorrect because those represent the intercompany receivables, cost of goods sold and revenues respectively.

Answer 152

D Explanation: While a contingent loss may be recognized before it is realized, a contingent gain cannot be recognized until it is realized. Therefore, the basic accounting principlet that supports the immediate recognition of a contingent loss is conservatism. The convention of conservatism urges the accountant to refrain from overstatement of net income or net assets.

Answer 153

B Explanation: Stock options should be used in the calculation of diluted EPS if the effect is dilutive (their inclusion has the effect of decreasing the EPS amount or increasing the loss per share amount otherwise computed).

Answer 154

A Explanation: The increase in net accounts receivable represents sales that were not collected in cash; therefore, this amount must be subtracted from net income to compute net cash from operating activities. The decrease in prepaid rent expense represents expenses recognized that were not paid in cash, and thus must be added for the adjustment. The increase in accounts payable represents purchases that were not paid out in cash, and thus must be added for the adjustment. Net income $150,000 Increase in net accounts receivable [($29,000 - $1,000) - ($23,000 - $800)] $(5,800) Decrease in prepaid rent expense ($12,400 - $8,200) 4,200 Increase in accounts payable ($22,400 - $19,400) 3,000 Adjustments 1,400 Net cash provided by operating activities $151,400 Options (b), (c) and (d) are incorrect because of inaccurate calculations

Answer 155

B Explanation: Penn should consolidate both Sell and Vane. Penn has a controlling financial interest in Sell through direct ownership of a majority voting interest (i.e., 75 %). The intercorporate stock ownership arrangement with respect to Vane indicates a chain of interests, the product of which (i.e., 75% × 60% = 45%) does not represent control of the lower level subsidiary, where control is defined in terms of the 50% stock ownership minimum. Notwithstanding the 45% indirect interest of Penn in Vane, the preparation of consolidated statements is warranted in this instance. While the product of equities in the chain are factors in the determination of consolidated net income and consolidated retained earnings, it is not a determinant in establishing a minimal condition for preparation of consolidated financial statements. There is no evidence that control does not rest with Penn.

Answer 156

Explanation: The correct answer is (B). Event 1 - The gain on early retirement of bonds would be reported as a separate component of income from continuing operations. This is not unusual or infrequent as Fuqua frequently retires bonds early when the interest rates decline. Event 2 - Hurricane losses have been frequent, and hence would be reported as a non-operating item. They will be treated as a loss from continuing operations. Event 3 - The loss on disposal of a business segment is reported in discontinued operations, a separate component of net income after income from continuing operations. The total amount of gain (loss) that should be reported by Fuqua Steel, separately as a component of income from continuing operations in the current year is hurricane loss of $255,000 and the gain on early retirement of bonds of $260,000 which gives a net gain of $5,000. Option (A) is incorrect because it does not consider the loss from hurricane damage. Option (C) is incorrect because it does not consider the gain from retiring bonds. Option (D) is incorrect because loss from divestiture is not reported as part of income from continuing operations but reported separately in discontinued operations.

Answer 157

D Explanation: Fundamental qualitative characteristics of information are relevance and faithfully representation. Information is faithfully represented if it represents what it purports to represent. Components of faithful representation are that it is complete, neutral, and free from error. Enhancing qualitative characteristics include: comparability, verifiability, timeliness, and understandability. These characteristics enhance the usefulness of information that is relevant and faithfully represented.

Answer 158

A Explanation: Accounts payable $ 80,000 Bonds payable $ 300,000 Discount on bonds payable $ (15,000) Total $ 365,000 Deferred Tax Liability of $25,000 will not be included as FASB issued Accounting Standards Update 2015-17 requiring companies to classify all deferred tax assets and liabilities as non-current on the balance sheet [IFRS always had this requirement]. The Board released the new guidance as part of its simplification initiative, which, as explained in the ASU, is intended to “identify, evaluate, and improve areas of US GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to the users of the financial statements”. This is effective from December 15, 2016 for public companies and December 15, 2017 for non-public companies. Earlier: Deferred tax assets and liabilities were segregated into current and non-current amounts.Options (B), (C) and (D) are incorrect based on the above explanation.

Answer 159

A Explanation: Dilutive securities are included in the calculation of diluted EPS; thus the convertible bonds would be included, reducing the $15.00 by $0.75. Antidilutive securities are excluded from dilutive EPS; thus the options are not included. $15.00 - $0.75 = $14.25.

Answer 160

C Explanation: SEA reporting emphasizes performance results and is designed to help public policy-makers evaluate which programs are critical for a community. SEA reporting enhances financial reporting, but focuses on the government’s programs and services, not the revenue sources. SEA reports may support the integration of performance management initiatives into the governmental budget process, but are primarily focused on the quality of programs and outcomes or effectiveness of those programs. GASB does not require SEA reporting.

Answer 161

A- $0 Explanation: Cash advance of $100,000 is eliminated and $0 is reported in consolidated F/S, since an entity cannot engage in business transactions with itself. Option (B) is incorrect because $20,000 ($100,000 x 20% NCI) represents NCI. Eliminate 100% of all inter-company transaction while consolidating, irrespective of the % holding of the acquirer. Option (C) is incorrect because $80,000 ($100,000 x 80%) is the 80% share in Cowan. Eliminate 100% of all inter-company transaction while consolidating, irrespective of the % holding of the acquirer, since an entity cannot engage in business transactions with itself. Option (D) is incorrect because $100,000 cash advanced by Rowe Inc., should be 100% eliminated while consolidating, irrespective of the % holding of the acquirer

Answer 162

D Explanation: A comprehensive basis of accounting other than generally accepted accounting principles is one of the following: (1) a basis of accounting used to comply with regulatory requirements; (2) a basis used for tax purposes; (3) a cash basis; (4) a definite set of criteria having substantial support, such as the price-level basis of accounting. A basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution does not fit any of the categories.

Answer 163

A Explanation: Cash flows from operating activities include the cash effects of transactions and other events that enter into the determination of net income, including the gain on sale of plant assets. The sale of fixed assets is an investing activity. The payment of dividends and the issuance of common stock are financing activities.

Answer 164

C Explanation: Since the goods out on consignment have not yet been sold, two adjustments are required. Accounts receivable decreases by the $26,000 selling price of the unsold goods that was included in its balance. Inventories increases by the $20,000 (i.e., $26,000 / 130%) cost of the unsold goods which was not included in its balance. Cash $ 70,000 Accounts receivable ($120,000 - $26,000) 94,000 Inventories ($60,000 + $20,000) 80,000 Current assets, 12/31 $ 244,000

Answer 165

C Explanation: The income statement of a business enterprise for current and prior periods shall report the results of operations of the component in discontinued operations in the period(s) in which they occur.

Answer 166

Explanation: The correct answer is (B). Gains or losses from the sale of long-term investments are reported as income from continuing operations.

Answer 167

B Explanation: To compute earnings per share for the current year and the previous year, the weighted average number of common shares outstanding must be computed for each respective year. Current Year Previous Year Common shares outstanding at 1/1 100,000 100,000 Sale of additional shares, 4/1 of current year (20,000 × 9/12 of year) 15, 000 2-for-1 stock split, 7/1 of current year (previous year: 100,000 × 100%) 100,000 (current year: 115,000 × 100%) 115,000 ______ Weighted average common shares outstanding 230,000 200,000Earnings per share for the current year is $1.78 ($410,000 ÷ 230,000 shares) and the previous year is $1.75 ($350,000 / 200,000 shares). Stock dividends, stock splits, and reverse splits are given retroactive recognition in the computation of earnings per share for all periods presented.

Answer 168

A Explanation: Basic earnings per share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of shares outstanding during the period. The income available for common stockholders is net income, less any adjustments for senior claims. Senior claims include preferred stock. The total adjustment for preferred dividends is $200,000 (20,000 shares × $100 par value × 10%). The net income of $2,000,000 less preferred dividends earned of $200,000 leaves $1,800,000 of income available to common stockholders. The $1,800,000 divided by 200,000 shares provides basic EPS of $9.00.

Answer 169

C OR D Treasury 108 and APIC 42 Explanation: Under the cost method, the reissuance of the shares results in a credit to Treasury Stock for its acquisition cost and to Additional Paid-in-Capital for the excess of the cash received over the cost of the treasury stock. The Retained Earnings and Common Stock accounts are not affected by the reissuance. Cash (3,000 shares × $50) 150,000 Treasury stock (3,000 shares × $36) 108,000 Additional paid-in capital (to balance) 42,000 To record the issuance of treasury stock.

Answer 170

B Explanation: By definition, "realization" means the process of converting a noncash resource or right into cash. The sale of equipment (a noncash resource) for a note (a claim to cash) conforms to the realization concept. The other transactions indicated do not involve the conversion of a noncash resource or right into cash.

Answer 171

B Explanation: The loan funds group of a college is used to account for loans to students, faculty, and staff (and of resources available for such purposes).

Answer 172

D Explanation: Cash inflows from financing activities are (1) proceeds from issuing equity instruments and (2) proceeds from issuing bonds, mortgages, notes, and from other short- or long-term borrowing. Option (a) is incorrect as there is no section for Lending activities. Option (b) and (c) is incorrect as per above explanation.

Answer 173

A Explanation: Under cash basis accounting, the effects of transactions on the assets and liabilities of a business enterprise are recognized and reported only when cash is received or paid; while in accrual accounting, these effects are recognized and reported in the time periods to which they relate. Cash basis accounting does not attempt to match revenues and the expenses associated with those revenues. As such, both the $10,000 increase in accounts receivable and $6,000 decrease in accounts payable would reduce the pretax income under the cash basis of accounting. $100,000 – $10,000 – $6,000 = $84,000.

Answer 174

Explanation: The correct answer is (A). When the restriction is removed, the following Journal Entry is passed Dr. Net assets with donor restriction released Cr. Net assets without donor restriction Thus, this will result in a decrease in assets with donor restriction and an increase in net assets without donor restriction.

Answer 175

B Explanation: Information in the notes does not meet the criteria for recognition. Notes add objective explanations for significant issues, and have a clear, demonstrable relationship to the financial statements. This information allows knowledgeable users to analyze the more complex components of financial position. Recognition is used to describe information presented in the basic financial statements, not the note disclosures. Governmental reporting standards are established by the Governmental Accounting Standards Board, not the audit standards bodies. Information required by rating agencies is a factor for analyzing the needs of users, but specific rating agency requirements are not outlined in the GASB reporting framework.

Answer 176

B Explanation: Regulation S-X is the principle accounting regulation of the SEC, governing the annual report. All financial statements presented in annual reports must conform to the S-X accounting and disclosure rules. Regulation S-T is the cornerstone of the EDGAR rules, prescribing requirements for electronic filing and the procedures for making such filings. There is no regulation 10-K, but there is a form 10-K which typically contains more detailed information about the company’s financial condition than the annual report. Regulation 12B governs all registration statements.

Answer 177

B Explanation: There are three categories of filers: 1) non-accelerated filers, 2) accelerated filers, and 3) large accelerated filers. Non-accelerated filers are issuers that have a public float of less than $75 million. Accelerated filers are issuers that have a public float of at least $75 million but less than $700 million. Large accelerated filers must file the Form 10-Q with the SEC within 40 days after the end of the company's fiscal year. Large accelerated filers are issuers that have a public float of $700 million or more.

Answer 178

Explanation: Intercompany payables and receivables are eliminated in the preparation of consolidated financial statements. The amount of Shel's payable to Pare for intercompany sales can be computed by subtracting the amount reported for consolidated accounts receivable from the sum of the accounts receivable reported in the separate financial statements of Pare and Shel [i.e., ($52,000 + $38,000) - $78,000 = $12,000].

Answer 179

Explanation: The correct answer is (B). The statement of activities includes the revenues, expenses and the net assets released from restriction. Thus, any net asset reclassification (from net asset with donor restrictions to net asset without donor restrictions) is reflected in the statement of activities. (A) is incorrect because even though the statement of financial position reports the net assets, reclassification is reflected only in the statement of activities. (C) and (D) are incorrect based on the above explanation.

Answer 180

B Explanation: Operating segments have three characteristics. The description in answer a contains no characteristics that would qualify it as an operating segment. The description in answer b meets all three characteristics of an operating segment as well as the quantitative thresholds criteria. Even though the description in answer c meets the characteristics of an operating segment, it does not meet the quantitative thresholds criteria. The description in answer d meets the quantitative thresholds criteria but does not meet all three characteristics of an operating segment.

Answer 181

A Explanation: The results of discontinued operations are reported separately from continuing operations. Discontinued operations refers to the operations of a component of an entity that has been disposed of or is still operating, but is subject of a formal plan for disposal. A component of an entity is defined as a segment, reporting unit, or asset group whose operations and cash flows are clearly distinguished from the rest of the entity, operationally as well as for financial reporting purposes. The small appliance group clearly qualifies as a component of an entity. When Envoy classifies the small appliance group as held for sale it is in effect implementing a formal plan for disposal. Options (B), (C) and (D) are incorrect because they do not satisfy both the conditions to be reported as discontinued operation.

Answer 182

Explanation: The correct answer is (D). In the case of discontinued operations once the plan is approved for disposal, the income or loss from operations from the beginning of the period to the date on which the decision was made is reported as a gain or loss from operations of a discontinued segment. In this case, for the period January 1 through April 30, the segment had revenues of $500,000 and expenses of $800,000 i.e., loss of $300,000 would be reported by Deer as part of discontinued operations.

Answer 183

C Explanation: Cash paid for interest of would be increased by prepaid interest and decreased by accrued interest payable. Prepaid expenses are expenses that have been paid, but not yet incurred. A decrease in the Prepaid interest account indicates that Ness incurred interest expenses of $23,000 during the year. The journal entry would be a debit to interest expense $23,000 and a credit to prepaid interest $23,000, thus increasing interest expense for the year. It was not included in the $70,000 because no cash was paid out during the year. Accrued interest payable is interest that has been incurred (previously debited to interest expense), but has not been paid. A decrease in the accrued interest payable account would indicate that cash was paid out during the year for the accrued interest. The journal entry would be a debit to accrued interest payable and a credit to cash. In the direct method of reporting cash flows, accrued interest payable was included in the $70,000 because cash was paid out, but should not be included in the current year's interest expense since it was expensed in a prior period. $70,000 + $23,000 - $17,000 = $76,000.

Answer 184

A Explanation: After a project is added to the technical agenda, the FASB deliberates at one or more public meetings. If deemed necessary the FASB then issues an Exposure Draft to solicit broad stakeholder input and holds a public roundtable meeting on the Exposure Draft, if necessary. The FASB reports to the Financial Accounting Foundation (FAF), it does not delegate topics to the FAF for research and reporting. The FASB Board, not Emerging Issues Task Force, ratifies amendments to the Accounting Standards Codification by issuing an Accounting Standards Update. The FASB Chairman decides whether to add a project to the technical agenda, the FASB does not need to obtain approval from the International Accounting Standards Board (IASB) in setting its agenda.

Answer 185

C Explanation: A security is dilutive if the inclusion of the security in the computation of earnings per share (EPS) results in a smaller EPS or increases loss per share. Categories of potentially dilutive securities include (1) convertible securities where the if-converted method is used, (2) options, warrants, and their equivalents where the treasury stock method is used, and (3) contingently issuable shares. If the 7% convertible bonds are converted with each $1,000 bond into 40 shares of common stock. Numerator is increased by the after-tax interest expense and the denominator by number of shares, if the bond is converted. After tax interest = $49 [$1,000 x 7% x (1-0.3)]. Effect of converting each bond into 40 shares would be $1.225 ($49/40 Shares) per share which is less than $1.29 per share, resulting in dilution of basic EPS of $1.29. Option (A) is incorrect because preferred stock is not convertible and would not have a dilutive effect. Option (B) is incorrect because if the 10% bonds were converted, it will be $3.5 per share [($100-$30)/20], which would not dilute the EPS. Option (D) is incorrect because the effect of conversion will be $1.5 per share [($100 x 6%)/4], which would not dilute the EPS.

Answer 186

A Explanation: The SFAC objectives are designed to constitute a foundation for financial accounting standards. The framework is designed to prescribe the nature, function, and limits of financial accounting and to be used as a guideline that will lead to consistent standards.

Answer 187

B- Statement of financial condition Explanation: When personal financial statements are prepared, a presentation of financial data that is intended to communicate a person's or family's economic resources or obligations on a specific date is referred to as a statement of financial condition.

Answer 188

Explanation: The correct answer is (A). Major corporate events such as corporate asset acquisitions or disposals, amendments to financial statements, changes in accountants and auditors, changes in securities and trading markets and other such kinds are mandated to be reported to the SEC using the Form 8-K within 4 business days of the occurrence of the event. Acquisition of Bauer by ABC Co. should, thus, be reported through form 8-K.

Answer 189

Explanation: Cash flows from operating activities are the cash effects of transactions and other events that enter into the determination of net income, including interest and taxes. Operating activities generally involve producing and delivering goods and providing services. Net cash flow from operating activities may be reported under the indirect method by adjusting net income to reconcile it to net cash flow from operating activities. That requires adjusting net income to remove the effects of certain things, including (1) all accruals of expected operating cash receipts and payments, such as changes during the period in receivables and payables; and (2) items whose cash effects are investing cash flows, such as amortization, depreciation, and gains and losses on sales of property, plant, and equipment and discontinued operations. The nontrade notes payable increase would be a financing activity that would not be included in the operating activities reconciliation. ``` Net income $ 70,000 Depreciation expense 10,000 Accounts receivable increase (20,000) Gain on sale of equipment (10,000) Prepaid insurance increase (40,000) Accounts payable increase 30,000 Total current assets $ 40,000 ```

Answer 190

A Explanation: Under the direct method, enterprises are encouraged to report major classes of gross cash receipts and gross cash payments and their arithmetic sum – the net cash flow from operating activities. The indirect method calculates the net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities.

Answer 191

D Explanation: The number of shares used in computing earnings per share is determined as follows: 1/1 Shares outstanding 100,000 12/1 6% stock dividend (given retroactive treatment) 6,000 Weighted average number of shares 106,000

Answer 192

C $0 $0 Explanation: Combined financial statements are prepared after eliminating the effects of intercompany transactions. Any intercompany payable or receivable or intercompany gain or loss needs to be eliminated. Both the intercompany loans of $200,000 and the intercompany profit $500,000 would be eliminated to prepare the consolidated financials of Mr. Cord’s four corporations. Neither amount would be included in the combined financial statements. Options (A), (B) and (D) are incorrect based on the above explanation. CLOSE

Answer 193

A Explanation: An entity is required to display the accumulated balance of other comprehensive income separately from retained earnings, capital stock, and additional paidin capital in the stockholders' equity section of a statement of financial position (balance sheet).

Answer 194

Explanation: The correct answer is (D). The land was donated to the hospital without restriction as to use; therefore, the hospital records the donation with a debit to Land, a credit to Mortgage Payable, and a credit to Revenue - Net Assets without Donor Restriction for the excess of the fair value of the land over the mortgage assumed by the hospital.

Answer 195

D Explanation: Inventories have increased by $15,000 (i.e., $60,000 - $45,000) from the beginning to the end of the year, which means that inventory purchases were greater than cost of goods sold by this amount. Thus, the amount of inventory purchases is $285,000 (i.e., $270,000 + $15,000). Accounts payable have decreased by $13,000 (i.e., $39,000 - $26,000) from the beginning to the end of the year, which means that cash payments for inventories were greater than inventory purchases by this amount. The amount of cash paid to suppliers for inventories is $298,000 (i.e., $285,000 + $13,000).

Answer 196

Explanation: The correct answer is (A). A non-governmental not-for-profit organization is required to measure all investments in debt and equity securities with readily determinable fair values at fair value in the statement of financial position. The amount reported for the investments at year-end: Bonds $9,950 (+) Stock A at 100 x $51 + $5,100 (+) Stock B at 200 x $49 + $9,900 Total $24,850

Answer 197

C Explanation: Statement of financial position reports assets, liabilities and net assets of the NFP. Assets & liabilities may be classified and reported in order of liquidity and payment date. Net assets sections includes 2 accounts: 1) Net assets without donor restrictions 2) Net assets with donor restrictions Option (a), (b) and (d) are incorrect as per the above explanation.

Answer 198

Explanation: The correct answer is (B). The primary purpose and focus of the statement of activities for a non-governmental, not-for-profit organization is to demonstrate how the organization's resources are used in providing various programs and services. This statement is similar to a for-profit entity’s income statement. Its primary purpose is to provide relevant information about the effects of transactions and other events that change the amount and nature of net assets, types, and amounts of revenues received, and how the organization’s resources are used in providing various programs or services. It combines revenues, expenses, gains, and losses with the changes in net assets (i.e., equity). The statement must report the changes in total net assets and the change in each class of net assets.

Answer 199

B Explanation: Public business enterprises are required to report on business segments. Public business enterprises are those business enterprises that have issued debt or equity securities that are traded in a public market. It does not apply to nonpublic business enterprises or not-for-profit enterprises. While joint ventures may be public enterprises, they are not necessarily so. Note: Remember, the AICPA examiners instruct candidates to select the best answer.

Answer 200

C Explanation: The guidance in the earnings per share requires presentation of earnings per share (EPS) by all entities that have issued common stock or potential common stock (that is, securities such as options, warrants, convertible securities, or contingent stock agreements) if those securities trade in a public market either on a stock exchange (domestic or foreign) or in the over-the-counter market, including securities quoted only locally or regionally. This also requires presentation of EPS by an entity that has made a filing or is in the process of filing with a regulatory agency in preparation for the sale of those securities in a public market. It should be noted that the scope of ASC 260 excludes non-public entities and entities whose publicly traded securities only include debt. However, an entity that is not required to present EPS, but does so voluntarily, should present EPS in accordance with the guidance in ASC 260. Options (A), (B) and (D) are incorrect based on the above explanation.

Answer 201

A Explanation: The sale of inventory between two affiliates triggers the individual accounting systems for both companies. Revenue is recorded by the seller while the purchase simultaneously is entered into the accounts of the acquiring company. However, from a consolidated perspective, neither a sale nor a purchase has occurred. Therefore, the amount reported as sales in the consolidated income statement must be reduced by the full amount of the intercompany sale. In recording the sale of the inventory to the purchasing affiliate, the selling affiliate recognized cost of goods sold (CGS) based upon its acquisition cost. The purchasing affiliate later recognized cost of goods sold equal to the amount of the intercompany sale when it later resold all of these goods to unaffiliated customers. The CGS to unaffiliated customers should be based upon the CGS to the selling affiliate. Therefore, the amount reported as CGS in the consolidated income statement should also be reduced by the full amount of the intercompany sale because this is the amount of CGS recognized by the purchasing affiliate.

Answer 202

B- $139,008 Explanation: To calculate the weighted average number of common stock outstanding, shares sold to the public during the year must be prorated for the portion of the year they were outstanding as the funds received from issuance are only available for productive use by the corporation from that point on, not the entire year. Stock dividends, stock splits are retroactively adjusted, as though they have been outstanding and included at full amount for the current year, from the time of issue. Treasury stock reduces shares outstanding, again has to be prorated for the portion of the year they were repurchased. Date Particulars No. of months outstanding Calculation Total outstanding 1/1 Outstanding 100,000 shares 12 months 100,000 x 12/12 100,000 4/1 Issued 30,000 shares of common stock 9 months 30,000 x 9/12 22,500 6/1 Issued 36,000 shares of common stock 7 months 36,000 x 7/12 21,000 7/1 Declared a 5% stock dividend (retroactively adjusted from the time of issue) 12 months for 5% of 100,000 shares, 9 months for 5% of 30,000 shares and 7 months for 5% of 36,000 shares 5% (100,000 + 22,500 + 21,000) 7,175 9/1 Purchased as treasury stock 35,000 shares of its common stock 4 months 35,000 x 4/12 (11,667) Weighted average common stock outstanding 139,008 The stock dividend is calculated as a percentage of the number of shares outstanding as of the declaration date. Weighted average number of shares outstanding = 100,000 + 22,500 + 21,000 + 7,175 – 11,667 = 139,008. Option (A) is incorrect because the 5% stock dividend has been ignored and all shares are taken as though they were outstanding for the whole year (i.e. 131,000 = 100,000 + 30,000 + 36,000 -35000). Option (C) is incorrect because the treasury stock transaction on September 1 has not been accounted for. Option (D) is incorrect because the purchase of treasury shares has been added rather than subtracted.

Answer 203

Explanation: The correct answer is (C). Unrestricted net assets are not restricted by donors. Contribution to be used for general operations at the discretion of the board of directors are classified as Unrestricted: $100,000 Restricted net assets include contributions for future repairs to the organization's building and equipment at the donor's request ($250,000), specific program services as indicated by the donor ($50,000), and the purchase of investments to be held in perpetuity at the donor's request ($100,000) = $400,000

Answer 204

Explanation: A statement of activities or notes to financial statements shall provide information about expenses reported by their functional classification such as major classes of program services and supporting activities. VHWOs shall report that information as well as information about expenses by their natural classification in a separate financial statement.Other NFPs are encouraged, but not required, to provide information about expenses by their natural classification. Option (a), (c) and (d) are incorrect as per the above explanation

Answer 205

Explanation: A company disclosing voluntary information about the effect of changing prices should report this information in the supplementary information to the financial statements. This information should not be reported in the body of the financial statements, the notes to the financial statements, or management's report to shareholders.

Answer 206

Explanation: An overview of the FASB standards setting process as established by the Rules of Procedure includes: identify financial reporting issues based on recommendations from stakeholders or through other means; deliberate at one or more public meetings; issue an Exposure Draft to solicit broad stakeholder input; and finally, issue an Accounting Standards Update describing amendments to the Accounting Standards Codification.

Answer 207

Explanation: The correct answer is (B). Comprehensive Income = Net income + Other comprehensive income. Other comprehensive income includes foreign currency translation adjustments. Foreign currency translation adjustments for a foreign operation that is relatively self-contained and integrated within its environment do not affect cash flows of the reporting entity. They should be excluded from earnings. Accordingly, translation adjustments are reported in other comprehensive income (OCI). The other items are part of earnings on the income statement (A) is incorrect because dividend paid to shareholders is a part of shareholders equity. (C) is incorrect because the additional capital contribution is also a part of shareholders equity. (D) is incorrect because deferred revenue is a liability.

Answer 208

Explanation: All material related-party transactions that are not eliminated in consolidated or combined financial statements must be disclosed except for compensation arrangements, expense allowances, and similar items incurred in the ordinary course of business.

Answer 209

Explanation: The correct answer is (C). The conditional pledge to a non-governmental not-for-profit organization should be recognized as revenue when conditions regarding the pledge are met. A conditional pledge is considered to be earned when the conditions related to the pledge are substantially met, or there is only a remote chance that the condition will not be met. As conditional pledges are subject to contingencies, they are not to be recognized as revenues until the conditions are substantially met.

Answer 210

Explanation: The accounting principle of historical cost requires assets as well as liabilities to be recorded and carried on the books at cost. Therefore, reporting inventory at the lower of cost or market is a departure from this principle.

Answer 211

Explanation: Current assets are economic benefits owned by a firm that are reasonably expected to be converted into cash or consumed during the entity's operating cycle or one year, whichever is longer. Restricted cash is cash held for a particular purpose and based upon the date ov availability or disbursement. Notes receivable are claims usually not arising from sales in the ordinary course of business. Accounts receivable are used for claims arising from the sale of goods or the performance of services.

Answer 212

Explanation: Basic earnings per share, with a simple capital structure is equal to net income minus the preferred dividends declared or the dividend preference on cumulative preferred stock for the current period (even though not declared) divided by the number of shares of common stock and common stock equivalents outstanding. ($500,000 - $10,000) / 200,000 = $2.45. The cumulative preferred's $10,000 dividend preference for the previous year that was paid in the current year is not included in the calculation. The preferred dividends for the current year are included in the calculation, regardless of whether they have been paid.

Answer 213

Explanation: Financing activities, as with commercial entities, include proceeds from borrowing or issuing debt and principal repayments, but also include transactions that are unique to NFPs such as receipt of investment income restricted for reinvestment, contributions restricted for long-term investment and contributions restricted for acquisition of plan and equipment. In this case the donor restricted cash contribution would fall into this definition.Options (a), (b) and (d) are incorrect based on the above explanation.

Answer 214

Explanation: In the single step income statement, the Total revenues = Net sales + Other revenues & gains. Therefore, the Total revenue is $250,000. Option (B) is incorrect because purchase discounts will not be included in the revenues but deducted from the cost of goods sold. Option (C) is incorrect because recovery of accounts written off will not impact the revenues. The recovery will reduce the allowance for doubtful debts account. Option (D) is incorrect as per the above explanation.

Answer 215

Explanation: A company’s annual growth rate is not a requirement for filing with the SEC. Companies that meet any of the following criteria are required to file reports with the SEC: have assets greater than $10 million and have at least 500 employees; have sold securities to the public pursuant to a registration, such as an initial public offering; or whose securities are traded on a national, public exchange.

Answer 216

Explanation: Financial statements prepared under the current cost/constant dollar method of accounting include adjustments for both specific price changes and general price-level changes. Historical cost/nominal dollar is the generally accepted method of accounting based on measures of historical prices without restatement. Current cost/nominal dollar is a method of accounting in which adjustments for specific price changes are made but not for general price-level changes. Historical cost/constant dollar is a method of accounting in which adjustments are not made for specific price changes, but are made for general price-level changes.

Answer 217

Explanation: Basic earnings per share is equal to net income minus the preferred dividends declared for the current period divided by the weighted average number of shares of common stock and common stock equivalents outstanding. Stock dividends are retroactively applied to the beginning of the year. Basic EPS are $3.91 [(net income of $960,000 - preferred dividend of $100,000) divided by 220,000 weighted average common stock outstanding.] Common shares outstanding on January 1 200,000 Add: Stock dividend (retroactive to first of the year) 20,000 Total common shares outstanding 220,000

Answer 218

Explanation: The correct answer is Option (B). To arrive at basic EPS, the income available to common stock holders is divided by the number of common shares outstanding. Income available to common stockholders is net income less dividends on preferred stock (not net of tax). Net income $980,000 Less dividends on preferred stock $(45,000) Income available to common stock holders (a) $935,000 Common shares outstanding 90,000 Basic EPS(a/b) $10.39 Option (A), (C) and (D) are incorrect as per above explanation.

Answer 219

Explanation: The Accounting Standards Advisory Forum is an advisory group to the IASB consisting of national accounting standard-setters and regional bodies with an interest in financial reporting and are selected by the Trustees. The IFRS Advisory Council is the formal advisory body to the IASB and the Trustees. The IFRS Interpretations Committee has 14 voting members appointed by the Trustees of the IFRS Foundation for their technical ability. The IFRS Foundation Monitoring Board Members consist of capital markets authorities responsible for setting the form and content of financial reporting.

Answer 220

Explanation: In the consolidated balance sheet, the machine's cost must be based upon the original cost of the machine to the initial buyer. Therefore, the machine is reported at its cost to the consolidated entity of $1,100,000 and thus the balance of the machine's accumulated depreciation is $300,000 [$250,000 + ($1,100,000 - $100,000) / 20].

Answer 221

Explanation: A gain or loss on the involuntary conversion (e.g., casualty, condemnation, theft) of a nonmonetary asset is recognized in income even if the proceeds received as a result of the involuntary conversion are reinvested in a replacement nonmonetary asset. The gain on the involuntary conversion is reported as a separate component of income from continuing operations. Insurance proceeds ($1,100,000 - $50,000) $1,050,000 Carrying amount at conversion date $ 300,000 Add: Dismantling cost 20,000 Amount to determine gain (320,000) Gain recognized on involuntary conversion $ 730,000

Answer 222

Explanation: | Filing of consolidated tax returns is indeed an example of a common transaction with related parties.

Answer 223

Explanation: In the period in which a component of an entity either has been disposed of or is classified as held for sale, the income statement of a business enterprise for current and prior periods shall report the results of operations of the component in discontinued operations in the period(s) in which they occur. Estimated future operating losses are included in the income statement in the future, when they are incurred.

Answer 224

Explanation: The correct answer is (C). The two classes of assets are Net Assets with and without Donor Restrictions.

Answer 225

Explanation: A majority-owned subsidiary should not be consolidated if control does not rest with the majority owner, for example, if the subsidiary is in legal reorganization or in bankruptcy or operates under foreign exchange restrictions, controls, or other governmentally imposed uncertainties so severe that they cast significant doubt on the parent's ability to control the subsidiary. Consolidation of majority-owned subsidiaries is required even if they have "nonhomogeneous" operations, control is likely to be temporary (unless parent is a broker dealer), or there is a difference in fiscal periods.

Answer 226

Explanation: When using the cost method, an excess of treasury stock acquisition cost over sales proceeds is recorded by a charge to an additional paid-in capital account or to the Retained Earnings account, not an income statement account. Therefore, this "loss" is not an adjustment in converting net income on an accrual basis to net cash provided by operating activities. The amortization of bond discount decreases net income (because of the increase in interest expense) but has no effect on cash. Thus, it is added to net income when using the indirect method of computing net cash provided by operating activities.Options (a), (b) and (d) are incorrect as per above explanation.

Answer 227

Explanation: Stock dividends, stock splits, and reverse splits consummated after the close of the period but before completion of the financial report are given retroactive recognition in the computation of earnings per share. The per share computations are based on the new number of shares because the reader's primary interest is presumed to be related to the current capital structure.

Answer 228

Explanation: Revenues are inflows or other enhancements of assets or settlements of liabilities from activities that constitute the entity's major or central operations. An expense would result from an outflow or other using up of assets from activities that constitute the entity's major or central operations. Gains and losses result from changes in net assets from an entity's peripheral or incidental transactions.

Answer 229

Explanation: Both tuition waivers and unrestricted bequests are included under current fund revenues. For colleges and universities, current funds revenues include (1) all unrestricted gifts and other unrestricted resources earned during the reporting period and (2) restricted current funds to the extent that such funds were expended for current operating purposes. Additionally, tuition remissions or exemptions should be assessed and reported as revenue even though there is no intention of collecting from the student. (Such remissions or exemptions are then offset as expenditures and appropriately classified.)

Answer 230

Explanation: The correct answer is (A). Each of the following is correct regarding the FASB: It is recognized as authoritative by the United States Securities and Exchange Commission and the American Institute of Certified Public Accountants. It establishes accounting concepts and standards for financial accounting and reporting and provides guidance on the implementation of standards. It provides a conceptual framework that helps to increase understanding of, and confidence in, financial information on the part of users of financial reports. Internal control is covered under COSO - The Committee of Sponsoring Organizations of the Treadway Commission. COSO develops principles and attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control and not FASB.

Answer 231

Explanation: Jane Co., owns 90% of Dun Corp., so 10% NCI dividends payable $10,000 ($100,000 x 10%) should be included in consolidated financial statements. Dividends paid for Beech Corp., at $100,000 and Dun Corp at $90,000 ($100,000 x 90%) is eliminated. Dividends paid by the acquiree, to the acquirer must be completely eliminated in a consolidation, since an entity cannot pay dividends to itself. With non-controlling interest (NCI), dividends payable to the NCI shareholders are not eliminated, since they are actual amounts owed to outsiders. Option (B) is incorrect because $100,000 is dividends paid by Beech Corp as Jane Co., owns 100% of Beech Corp, which is eliminated, since an entity cannot pay dividends to itself. Option (C) is incorrect because $190,000 is the sum of the dividends from Beech Corp., and Dun Corp., ($100,000 + $90,000) which should be eliminated, since an entity cannot pay dividends to itself. Option (D) is incorrect because $200,000 is the total dividends declared by Beech Corp., and Dun Corp, of which $190,000 dividends should be eliminated, since an entity cannot pay dividends to itself.

Answer 232

Explanation: | A disclosure about concentration of credit risks is required in the notes to the financial statements.

Answer 233

Explanation: The correct answer is (B). Form 10-K which is filled annually by issuers contains audited financial statements prepared using US Generally Accepted Accounting Principles (GAAP), financial disclosures, and a summary of financial data and Management’s Discussion & Analysis (MD&A).

Answer 234

A Explanation: The use of lower of cost or market may result in inventory losses that should not be deferred beyond the interim period in which the decline occurs. Recoveries of these losses in subsequent periods should be recognized as gains, but only to the extent of losses recognized in previous interim periods of the same fiscal year.

Answer 235

D-Economic Entity Explanation: Consolidated financial statements are prepared to present the financial position and operating results of the two separate organizations (i.e., parent company and subsidiary) as if only a single entity existed. Although the companies may legally be separate, the control of all decision making is now held by a single party, which indicates that only one economic entity exists. Reliability pertains to whether accounting information represents what it purports to represent, and is coupled with an assurance for the user that it involves the magnitude of an omission or misstatement of accounting information that, in light of the surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.

Answer 236

Explanation: The correct answer is A. Gains from extinguishment of debt are not classified as Other Comprehensive Income. Other Comprehensive Income includes Foreign currency translation adjustments Additional pension liability adjustments for a defined-benefit pension plan Adjustments for unrealized gains and losses on available-for-sale debt securities. Effective Cashflow Hedges

Answer 237

A- Report Change in Net Assets Explanation: Statement of activities reports revenues, net assets released from donor restriction, and expenses, which is the change in net assets for the period. Option (b) is incorrect because the liquidity of the entity can be better assessed by using the statement of financial position, not the statement of activities. Option (c) is incorrect because assets, liabilities and net assets as of a specific date are reported in the statement of financial position; not statement of activities. Option (d) is incorrect because cash flow position is better represented by statement of cash flow; not the statement of activities.

Answer 238

Explanation: | The appropriate method of accounting for governmental fund budgets is the modified accrual basis, recommended by GASB.

Answer 239

C Explanation: The financial capital maintenance concept defines income as the change in net resources other than from owner transactions. The financial capital maintenance concept is the capital maintenance concept used in present financial statements and comprehensive income. In contrast, under the physical capital maintenance concept, a return on physical capital results only if the physical productive capacity of the enterprise at the end of the period exceeds its capacity at the beginning of the period, also after excluding the effects of transactions with owners. The physical capital maintenance concept can be implemented only if inventories and property, plant, and equipment are measured by their current costs.

Answer 240

D Explanation: The characteristics of an asset are as under:- Probable future economic benefits. Owned/controlled today. Result of past transaction. Option (B) is incorrect because assets can be both tangible (e.g. building, plant, machinery etc.) or intangible (e.g. goodwill, patents, copyrights etc.). Option (C) is incorrect because asset can be obtained for cost or internally generated (like goodwill) or can be obtained in an exchange transaction. Option (A) is incorrect because claims related to an asset may or may not be legally enforceable

Answer 241

Explanation: The correct answer is (C). All investments in debt and equity securities that have a readily determinable market value are required to be measured at fair value. Gains and losses on the investments are included in the Statement of Activities as increases and decreases, respectively, in Net Assets without Donor Restrictions unless the use of the securities is donor-restricted, then it is classified as Net Assets with Donor Restrictions.

Answer 242

Explanation: The correct answer is (C). When closing inventory is subtracted from the total inventory available, the result would be the Cost of Goods Sold (COGS). Total inventory includes opening inventory and purchases, reduced by the write-off of obsolete inventory. COGS = Opening inventory + Purchases - Write-off of obsolete inventory - Closing inventory = $90,000 + $124,000 - $34,000 - $30,000 = $150,000. Inventory, 12/31 of the previous year $ 90,000 Add: Purchases 124,000 Goods available for sale $214,000 Less: Inventory, 12/31 of current year $30,000 Write-off of obsolete inventory 34,000 (64,000) Cost of Goods Sold $150,000

Answer 243

Explanation: The correct answer is (D). The primary objective of financial reporting is to satisfy the informational needs of users which include existing and potential investors, lenders and creditors so that they can use the information to make economic decisions. The balance sheet gives a report about the financial position of economic resources and claims against the entity. The income statement reports about the financial performance over a period of time via accrual accounting. Cash flow statement reports on financial performance via cash flows. Amongst, all the given options the primary objective of financial reporting is to provide information that is useful for economic decision making.

Answer 244

Explanation: The correct answer is (A). IFRS has less prescriptive standard financial statement presentation layouts than US GAAP because it does not prescribe a standard layout, but includes a list of minimum items. Both US GAAP and IFRS require that the financial statements be prepared on the accrual basis of accounting (with the exception of the cash flow statement) except for rare circumstances. Under IFRS, entities may present expenses based on either function or nature, but under US GAAP, SEC registrants are required to present by function. US GAAP allows for the LIFO inventory valuation method to be used, whereas IFRS prohibits it.

Answer 245

Explanation: Relevance is one of the two fundamental qualitative characteristics. Information is relevant if it is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations. Predictive, or confirmatory, value is the trait that allows financial information to make a difference. Information has predictive value if it can be useful in predicting future outcomes by users. Confirmatory value provides feedback (confirms or changes) about previous assessments. Relevance is one of the two fundamental qualitative characteristics. Information is relevant if it is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations. Predictive, or confirmatory, value is the trait that allows financial information to make a difference. Information has predictive value if it can be useful in predicting future outcomes by users. Confirmatory value provides feedback (confirms or changes) about previous assessments.

Answer 246

A- $140,000 Explanation: The assets of the division are: ``` Ref Assets Amount ($) a Buildings 5,000,000 b Accumulated Depreciation (3,000,000) c Inventory 500,000 d Accounts Receivable 200,000 e Total Assets (a+b+c+d) 2,700,000 f Liabilities g Mortgage on buildings 1,100,000 h Accounts payable 600,000 i Total Liabilities (g+h) 1,700,000 Net Worth: Total Assets - Total Liabilities = ($2,700,000 - $1,700,000) = $1,000,000. ``` Net loss on transaction = Sales price - Net worth = $800,000 - $1,000,000 = $(200,000). 30% tax gain = $(200,000) x 30% = $60,000 gain After tax net loss on sale of division = $(200,000) + $60,000 = $(140,000). Options (B), (C) and (D) are incorrect as per the above explanation.

Answer 247

A- Cash Payment Explanation: To answer this question, reconstruct separate journal entries for the portion of the building acquired by issuing the mortgage note payable to the seller and the portion of the building acquired by paying cash. Building XX Mortgage Note Payable XX Building XX Cash XXThe portion of the building acquired by issuing the mortgage note payable to the seller is a noncash investing and financing activity. This portion does not result in cash receipts or payments. Therefore, this portion of the transaction should be reported in related disclosures and not in the body of the statement of cash flows. The portion of the building acquired by paying cash should be reported as a cash outflow due to an investing activity.

Answer 248

C- $16,500 Explanation: The note cannot be recorded at its face amount because it is noninterest-bearing. A noninterest-bearing note should be recorded at the fair value of the equipment exchanged or at an amount that reasonably approximates the market value of the note, whichever is the more clearly determinable. In the absence of an established exchange price for the equipment or evidence of the market value of the note, the note should be recorded at its present value, determined by discounting all future payments of the note at the prevailing rate of interest for a note of this type. The interest revenue to be recognized in year 6 and year 7 is computed as follows: Year 6 Year 7 Face amount of note $200,000 $200,000 Less imputed interest 50,000 * 35,000 ** Balance, 1/1 150,000 165,000 Effective interest rate × 10% × 10% Interest revenue recognized $ 15,000 $ 16,500 * The amount of imputed interest at 1/1, year 6 is computed as the difference between the $200,000 face amount of the note and the $150,000 ($200,000 x 0.75) present value of the note. ** The amount of imputed interest at 1/1, year 7 is computed as the difference between the imputed interest at 1/1, year 6 of $50,000 minus the $15,000 of imputed interest recognized as interest revenue in year 6.

Answer 249

B- Planned and approved Explanation: Discontinued operations refers to the operations of a component of an entity that has been disposed of or is still operating, but is the subject of a formal plan for disposal. A component of an entity is a segment, reporting unit, or asset group (not a part of a line of business) whose operations and cash flows are clearly distinguished from the rest of the entity, operationally as well as for financial reporting purposes. Options (A), (C) and (D) are incorrect as per the above explanation.

Answer 250

A- 40 days ``` Explanation: Accelerated filers (including large accelerated filers) must file the Form 10-Q within 40 days after the end of the quarter in accordance with SEC regulations. ```

Answer 251

D- 4th quarter Explanation: In case of declines in inventory values at interim dates that are expected to be recovered by year-end, inventory should not be written down to market at the interim date. At the end of the year, the decline in the value of inventory has not reversed it should be recognized in the earliest interim period in which it is determined that it will not be recovered, which is in this case the fourth quarter. Option (A), (B) and (C) are incorrect based on the above explanation.

Answer 252

C- $208k (40 is already in the investing activities) Explanation: A statement of cash flows should report the cash provided or used by operating, investing, and financing activities. It should also report the net effect of those flows on cash and cash equivalents during the period in such a manner that reconciles the beginning and ending cash and cash equivalents. The $40,000 sale of land proceeds already is incorporated in the cash flows from investing activities. Beginning cash balance, Jan 1 $ 27,000 Plus: Cash from operating activities 351,000 Less: Cash for investing activities (420,000) Plus: Cash for financing activities 250,000 Cash balance, Dec 31 $208,000 Option (a) is incorrect because it is beginning cash balance.Option (b) is incorrect because it is the net cash flow used by investing activities.Option (d) is incorrect because it includes $40,000 for the proceeds on the sale ofland, which is included in investing activities.

Answer 253

D- Where it generates cash Explanation: An entity's functional currency is the currency of the primary economic environment in which the entity operates. Normally, that is the currency of the environment in which an entity primarily generates and expends cash. The functional currency of a foreign entity may be its local currency, the U.S. dollar, or another foreign currency. Where a foreign operation is relatively self-contained and integrated within one country, the entity's functional currency will be the local currency. Where the foreign operation is, in essence, an extension of the parent's U.S. operations, the functional currency will be the U.S. dollar. A foreign entity may keep its books in the local currency, yet have another foreign currency as functional currency; in which case remeasurement of the recording currency statements into functional currency will be required.

Answer 254

D Explanation: Since the cash price equaled or exceeded the fair market value of identifiable assets, these assets will be reported at their fair market value at acquisition (not their previous carrying amount). Goodwill is not calculated using one particular asset acquired or liability assumed. Goodwill is the excess of the investment cost (acquisition price), plus the fair value of any noncontrolling interest, over the fair value of the identifiable net assets acquired.

Answer 255

D Explanation: Interest Expense is classified as a separate line item on the income statement. Advertising is classified as a selling expense.

Answer 256

C- Liabilities need to be recorded at PV not Book Value Explanation: All liabilities that the partnership assumes are recorded at their present values.

Answer 257

Explanation: The correct answer is (B). The release of an Accounting Standards Update marks the incorporation of amendments into the FASB Accounting Standards Codification. FASB amends the ASC through the issuance of Accounting Standards Updates (ASU) which describes the amendment to the ASC and date from when the amendment will be effective. The other answers may be steps in the process, but the release of an accounting standards update makes it official.

Answer 258

C- Remember to subtract unamortised bond Discount Explanation: Unamortized bond discount decreased by $500 (i.e., $5,000 - $4,500) from the beginning to the end of the year. The bond discount amortization decreases net income (because of the increase in interest expense) but has no affect on cash. Therefore, the amount of cash paid for interest is $3,800 (i.e., $4,300 - $500). Since interest expense is an income statement account rather than a balance sheet account, the change in that account is not used.

Answer 259

D- Comparability Explanation: The usefulness of relevant, faithfully represented financial information is enhanced if comparable. It is also enhanced if it is verifiable, timely, and understandable. Consistency assists in comparability. Although uniformity and unilateralism may be good attributes, they are not identified in the IASB Conceptual Framework as enhancing financial information.

Answer 260

B- $2000 Remember it asked for bank balance Explanation: Assets restricted to a particular use assume the liquidity of that use. Endowment funds are typically long-term assets. (Endowment implies a net asset with donor restrictions.) Amounts available to spend on ongoing programs are current. The $2,000 was available and spent on programs. Options (a), (c) and (d) are incorrect as per above explanation.

Answer 261

B- Cost Benefit Constraint Explanation: A specific constraint in terms of the usefulness of information in financial statements pertains to the cost-benefit relationship. In determining the kind and amount of information to be provided, the cost of obtaining the information must be considered. Information is valuable only to the extent that the cost of procuring and analyzing it is less than the benefits derived from its use. Option (A), (C) and (D) are incorrect because consistency, reliability & faithful representation are the primary qualitative characteristics of financial statements and not the constraints.

Answer 262

Explanation: The correct answer is (C) With the FAST act Modernization and Simplification of Regulation S-K, the SEC requires cover pages to include the following for each class of security: ``` The exchange on which each class of security is traded. Trading Symbol for each class of security. Title of each class of security. The Market Price of each class of security is not a requirement by the SEC. ```

Answer 263

B- Decrease in assets without donor restrictions Explanation: In the statement of activities, expenses are reported only in the net assets without donor restrictions column. Depreciation is reported as expense resulting in a decrease of net assets without donor restrictions. Option (a) is incorrect because depreciation expense is included in the statement of activities. Option (c) is incorrect because all expenses are reported as a decrease in net assets without donor restrictions and not an increase in net assets with donor restrictions. Option (d) is incorrect because depreciation expense will not be reclassified; it is a decrease in the net assets without donor restrictions.

Answer 264

A- affect capital but not cash Explanation: The company failed to record an accrued expense at the end of year 1. This error understates current liabilities at the end of year 1, thus overstating working capital at the balance sheet date. The failure to accrue the expense has no effect on the cash account, and therefore no effect on cash flows from operating activities for year 1.

Answer 265

D- Free from Error Explanation: Information is faithfully represented if it represents what it purports to represent and is complete, neutral, and free from error.

Answer 266

Explanation: The correct answer is (C). For purposes of consolidating financial interests, a majority voting interest is deemed to be greater than 50% of the directly or indirectly owned outstanding voting shares of another entity. This indicates that the acquirer has control over the acquiree and the members of the acquirer company constitute a majority of the board of directors of the acquiree. (A) is incorrect because a majority voting interest means more than 50% of outstanding voting rights, not just 50%. (B) and (D) are incorrect because in order to determine majority voting interest only outstanding voting shares of the entity are taken into consideration, not outstanding non-voting shares. There is no requirement to own outstanding nonvoting shares of another entity.

Answer 267

D- Remember its was accounted for under acq method Explanation: If 80% of Sutton cost $1,100,000, then 100% of Sutton would have cost $1,375,000 [$1,100,000/.80]. The noncontrolling interest is $275,000 [$1,375,000 * 20%].

Answer 268

A- Maple is not an NFP Explanation: The church is an other nonprofit organization (ONPO). ONPOs may establish investment pools. Such pools should be accounted for on a market value basis to ensure equitable allocations of realized and unrealized gains and losses among participating funds. An ONPO may pool both unrestricted and restricted investments.

Answer 269

A- 30K make sure to value at fair value Explanation: Investments in debt securities that are classified as available for sale (AFS) securities are valued at the fair market value (FMV) on the balance sheet date. If fair value option is not elected, their unrealized gain or loss is reported in the statement of comprehensive income. At the end of Year 5, Ball Corp. would have valued AFS securities at $130,000, which is FMV on that date. At the end of Year 6, they would be valued at $160,000. The resultant gain of $30,000 would be reported in the statement of comprehensive income for Year 6. Option (B) is incorrect because $20,000 would be the difference between the cost $150,000 and market value at the end of Year 5 $130,000. Any unrealized gain or loss of Year 5 would be reported in the statement of comprehensive income of that year and will not affect the statement of comprehensive income for Year 6. Option (C) is incorrect because $10,000 is the difference between the cost $150,000 and the FMV at the end of Year 6 $160,000. Investments that are classified as AFS would be valued at the FMV as of each balance sheet date. Option (D) is incorrect because $0 implies that no unrealized gain or loss is recognized in the statement of comprehensive income in Year 6. Ball Corp. had not elected the fair value option, any unrealized gain or loss would be reported in the statement of comprehensive income and not the statement of income.

Answer 270

B- Explanation: Cash inflows from financing activities include proceeds from issuing equity securities (e.g., treasury stock). Cash outflows for financing activities include payments of dividends and repayments of amounts borrowed. Payment of acquire common stock is an investing activity. Payment of interest on bonds payable is an operating activity. Only the $300,000 payment of dividends is a financing activity.

Answer 271

D Explanation: The entity presenting its most recent previous financial statements in accordance with national requirements, using some individual IFRS to account for items for which national requirements do not exist, is one of the criteria that would qualify an entity’s financial statements as the entity’s “first set” as defined by IFRS 1. Also qualifying would be the entity presenting its most recent previous financial statements: in accordance with national requirements that are not consistent with IFRS in all respects; in conformity with IFRS in all respects, except that the financial statements did not contain an explicit and unreserved statement that they complied with IFRS; or in accordance with national requirements inconsistent with IFRS, using some individual IFRS to account for items for which national requirements did not exist.

Answer 272

C- remember the preferred are nonvoting Explanation: The investment in the nonvoting preferred stock must be accounted under the cost method because Green does not have the ability to significantly influence the financial and operating policies of the investee by virtue of the preferred stock investment. Therefore, the $60,000 dividend declared on the preferred stock is reported as dividend revenue by Green. The 30% investment in the common stock should be accounted for under the equity method because Green has the ability to exercise significant influence over the investee by virtue of the investment. Under the equity method, the investor recognizes as income its share of the investor's earnings in the periods in which they are reported by the investee. These amounts are recognized as equity in the earnings of the investee and not as dividend revenue.

Answer 273

D- Accumulated Deprecition is non monetary Explanation: In classifying balance sheet accounts as monetary or nonmonetary, a valuation account is classified the same as the account to which it relates. Accumulated depreciation of equipment is classified as nonmonetary because it is a valuation account to equipment which is nonmonetary.

Answer 274

D ``` Explanation: Under IFRS, revaluation is a permitted accounting policy if fair value can be reliably measured. If an item of PP&E is revalued, the entire class to which the asset belongs must also be revalued. Revaluation adjustments decreasing the carrying amount are recognized as loss. Revaluation adjustments increasing the carrying amount are recognized in other comprehensive income and accumulated in equity as “revaluation surplus.” To the extent that the increase reverses a previous revaluation decrease, the increase should be recognized as profit. Therefore, the $10,000 recovery from the previous negative adjustment would be recognized in profit; the remaining excess adjustment of $5,000 would be recognized in OCI. ```

Answer 275

Explanation: The correct answer is (B) Stockholders’ equity can be calculated simply as the difference between the total assets and liabilities. In the given problem statement, the year-end balance of assets is: Description $ Opening assets 600,000 Credit sales realized as cash 242,000 Debtors 8,000 Expenses paid in cash (72,000) Expenses paid other than in cash (18,000) Year-end balance 760,000 Liabilities remain unchanged at $400,000. The equity balance is: $760,000- $400,000 = $360,000. Note: Stock dividend is a dividend paid in the form of stock and doesn’t affect the assets.

Answer 276

A- Revenue recognition Explanation: The summary of significant accounting policies should disclose policies involving a choice of alternative acceptable polices, policies peculiar to that particular industry, and unusual applications of acceptable principles. This includes methods of profit recognition on long-term construction contracts. Disclosure of accounting policies should not duplicate details presented elsewhere in the statements. Future minimum lease payments in the aggregate and for each of the five succeeding fiscal years generally are presented in the notes to the financial statements, but not with the summary of significant accounting policies. Depreciation expense and composition of sales by segment are presented on the face of the financial statements.

Answer 277

Explanation: The correct answer is Option A. Assets received by Stanton College without donor restrictions would be classified as Net Assets without Donor Restrictions. Building which is a long lived asset would be recognized as increase to Net Assets without Donor Restrictions using the placed in service approach. Option B, C and D are incorrect as per above explanation.

Answer 278

Explanation: The correct answer is (D). Park, Inc. acquired 100% of Gravel Co.’s net assets. On the acquisition date, the $50,000 of costs associated with in-process research & development activities are intangible asset costs. Because Park, Inc. will assume all of Gravel Co.’s net assets, the intangible assets must be recorded at fair value of $400,000. (A) is incorrect because technology based intangibles include in-process research and development activities to be consolidated. (B) is incorrect because $50,000 is the book value of the in-process research and development activities. (C) is incorrect because book value is backed out from the fair value instead of using the fair value to recognize the in-process research and development activities (i.e. $350,000 = $400,000 - $50,000).

Answer 279

Explanation: The correct answer is (C). The reversal of loss of long-lived assets held and used is allowed under IFRS but not Under US GAAP. The following are required under Both US GAAP and IFRS: Goodwill and intangible assets with indefinite lives to be reviewed at least annually for impairment, and more frequently if impairment indicators are present. Require that an asset found to be impaired be written down and an impairment loss recognized. Prohibit reversal of the impairment of goodwill.

Answer 280

Explanation: The correct answer is (D). The preferred stock investment should be accounted for under the FVTNI method (Fair Value through Net Income) since it is highly unlikely that the investor has the ability to exercise significant influence over the operating and financial policies of the investee by virtue of the investment. Preferred stock is usually nonvoting. Under the FVTNI method, dividends are normally not recognized as income until they are declared by the investee. By definition, dividends in arrears have not yet been declared. Dividend income is a component of income from continuing operations.

Answer 281

A- Remember to see if its a gain or loss Explanation: Other comprehensive income includes revenues, expenses, gains, and losses that are excluded from net income. Instead, they are listed after net income on the income statement. These items have not yet been realized. In other words, the underlying transaction has not been completed or settled yet. Based on this definition, net income and any owner contribution would obviously not be included in other comprehensive income. Other comprehensive income items are classified by their nature within certain classifications such as: foreign currency items; pension adjustments, unrealized gains and losses on certain investments in debt and equity securities; and gains and losses on cash flow hedging derivative instruments. Other comprehensive income would include the gain on the effective cash-flow hedge, the foreign currency translation gain, and the prior service cost not recognized in net periodic pension cost. Deferred gain on an effective cash-flow hedge $ 8,000 Foreign currency translation gain 2,000 Prior service cost not recognized in net periodic pension cost _(5,000) Other comprehensive income for year 1 $ 5,000 Option (B), (C) and (D) are incorrect because the calculation above specifies the components for the other comprehensive income.

Answer 282

A Explanation: Consolidated of financial statements necessitate elimination of the impact of intercompany transactions. Perez sold goods to Senior at 40% gross profit margin. At a consolidated level, it is only a transfer of goods between Perez and Senior. The sales recognized by Perez and the cost of goods (all goods have been resold to third parties) recognized by Senior should be eliminated. This is done by reducing sales and cost of goods sold (COGS) with the amount at which Perez sold goods to Senior. Option (B) is incorrect because the elimination adjustment should be for the entire value of intercompany sale i.e. the sale price at which Perez sold goods to Senior. Elimination adjustment amount is not impacted by the percentage of holding of the parent company. Option (C) is incorrect because net income will not be impacted as both sales and COGS are adjusted by the same amount. This is because all of the goods purchased from Perez has been sold by Senior, However, if some of the goods were still held in inventory by Senior, unrealized profit on such inventory would need to be eliminated and will impact the net income. Further, intercompany elimination adjustments are not impacted by the percentage holding in the subsidiary. Option (D) is incorrect because the effect of intercompany sales transactions must be eliminated while preparing consolidated financial statements.

Answer 283

Explanation: The correct answer is (B) A substantial doubt about en entity’s ability to continue as a going concern is raised when certain conditions and events indicate that it is improbable for the entity to meet its obligations as they become due within 1 year after the date the financial statements are issued. Although the warehouse gets damaged by flood, it was insured. The entity is well protected against any financial adversity because of the insurance and, thus, this event is the least likely of all the given events to raise substantial doubts. Default on a loan agreement, Loss of a significant customer or supplier and Negative cash flows from operating activities are strong indicators of going concern doubt.

Answer 284

B- $100 Explanation: At issuance: Debit (Dr) Credit (Cr) Cash $ 700 Common Stock $ 600 Add'l Paid-In-Capital 100 At (re)acquisition: Debit (Dr) Credit (Cr) Treasury Stock $ 600 Add'l Paid-In-Capital 100 Retained Earnings-plug 300 Cash $ 1,000 Under the par value method, the acquisition of the treasury shares is viewed as a constructive retirement of the stock. Since capital stock is carried on the balance sheet at par (or stated value), the acquisition of treasury stock is also recorded at par (or stated value), by debiting Treasury Stock. Any Additional Paid-In Capital—Common Stock associated with the original issuance of the stock is also removed. If the acquisition cost exceeds the stock’s original issue price, then the excess is debited to Additional Paid-In Capital—Treasury Stock, but only to the extent of any existing balance from prior treasury stock transactions. The remaining excess, if any, is then debited to Retained Earnings.

Answer 285

A- Include in expense category Explanation: In financial statements prepared on the income-tax basis, the nondeductible portion of expenses is included in the expense category in the determination of income.

Answer 286

C- disclose impairment loss with IFRS Explanation: If an entity recognized or reversed any impairment losses for the first time in preparing its opening IFRS statement of financial position, the entity is required to provide the disclosures that IFRS would have required if the entity had recognized those impairment losses or reversals in the period beginning with the date of transition to IFRS.

Answer 287

Explanation: The correct answer is (C). Restricted net assets are $13,150,000. The purpose of the $10,000,000 gift is clear, that it must be used for an addition to the physical therapy unit. The earnings on the $3,000,000 investment i.e. $150,000, as well as the principal investment, are restricted as well.

Answer 288

D- current year is unrestricted but future has time restriction Explanation: Pledges are reported in the period in which they are made, net of an allowance for uncollectible amounts. If part of a pledge is to be applied during some future period, that part is reported as restricted revenue. Although the $300,000 of pledges received during the current year was unrestricted as to its use, there was a time restriction (designated for next year) on $100,000. The $100,000 less $5,000, for the 5% expected to be uncollectible, equals $95,000 to be reported as restricted support.

Answer 289

D $367,500 Explanation: Basic earnings per share (EPS) is computed by dividing income available to common stockholders (IAC) by the weighted-average number of shares outstanding during the period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period they were outstanding. There would originally have been 183,750 weighted average shares outstanding as of December 31, year 1. Those shares would be multiplied by 2 for the 2 for 1 stock split on February 15, year 2, resulting in 367,500 weighted average shares from year 1 that would be used in the March 1, year 2, calculation of basic earnings per share. ``` Date Transaction Change in Shares from Transaction Total Shares Outstanding 1/1, yr 1 Beginning balance 100,000 4/1, yr 1 Issued 30,000 shares for cash 30,000 130,000 6/1, yr 1 50% stock dividend 65,000 195,000 Total Shares Outstanding Months Outstanding Stock Dividend Stock Split Weighted Average 100,000 x 3/12 x 1.50 x 2 = 75,000 130,000 x 2/12 x 1.50 x 2 = 65,000 195,000 x 7/12 x x 2 = 227,500 Weighted average number of shares 367,500Note: Stock dividends and stock splits are applied retroactively to the beginning of the year from the date declared. ```

Answer 290

A- yes Explanation: Under a strict cash basis of accounting, revenues and expenses are recorded only when cash is received or paid. Under a modified cash basis of accounting, certain accruals and/or deferrals are recorded for financial-statement purposes. The most common modifications are the capitalization and amortization of long-lived assets and the accrual for income taxes (recognition of income tax expense and related liability).

Answer 291

B- 3.79 Explanation: Basic EPS = Income available to common shareholders/Weighted average number of common shares outstanding. Income available to common shareholders = Net income - Preferred stock dividends. Dividends on preference shares are deducted from the net income regardless of whether it has been declared or not. The weighted average number of shares of common stock outstanding is used as denominator. The shares sold must be prorated for the portion of the year they were outstanding. Ref Summary Amount a Net income for 2 years $236,000 b Dividends on preferred stock (10,000 shares x $60 Par) x 4% $24,000 c Net income available to common shareholders (a-b) $212,000 d Common stock, $3 Par 50,000 e Unissued common stock sold on Apr 1, year 2 (8,000 shares x 9/12) 6,000 f Weighted average number of shares outstanding (d+e) 56,000 g Basic EPS (c/f) $3.79 Option (A) is incorrect because shares issued on April 1 are not prorated. {$3.66 = [($236,000 - $24,000)/ (50,000 shares + 8,000 shares sold)]}. Option (C) is incorrect because it does not deduct the preferred dividends from net income and fails to prorate the shares issued on April 1. {$4.07 = [$236,000/ (50,000 shares + 8,000 shares sold)]}. Option (D) is incorrect because it does not deduct the preferred dividends from net income. {$4.21 = [$236,000/ (50,000 shares + (8,000 x 9/12) shares sold)]}.

Answer 292

D-95k per quarter Explanation: For interim financial reporting, costs and expenses other than product costs should be charged to income in interim periods as incurred or be allocated among interim periods based on an estimate of time expired, benefit received, or activity associated with the periods. The $60,000 in property taxes is for the entire calendar year and would be allocated evenly as $15,000 of expenses for each quarter. The $240,000 for major repairs happened on April 2 and will benefit operations for just the remainder of the year. The $240,000 divided by the three remaining quarters equals $80,000 in expenses for each of those three quarters. The $15,000 plus $80,000 equals $95,000 in expenses to be reported in the third quarter of the interim financial statements for the three months ended September 30.

Answer 293

Explanation: The correct answer is (C). Comprehensive income includes all items of the income statement and changes in equity during a period except those resulting from investments by owners and distributions to owners.

Answer 294

Explanation: The correct answer is (B). This report is for external users. Examples of external users are current investors and their advisors, potential investors, and lenders, financial analysts, certain government agencies, credit rating organizations, certain customers and suppliers, etc. The primary users are current/potential investors and their advisors. Regulatory agencies and taxing authorities are secondary users. The BOD and management are both internal parties.

Answer 295

A- $200k Explanation: Freight out is classified as an operating expense, not as part of cost of goods sold. ``` Inventory, December 31 $ 360,000 Cost of sales 240,000 Goods available for sale $ 600,000 Less inventory, January 1 (400,000) Cost of goods manufactured $ 200,000 ```

Answer 296

C- $126.5k Stock Dividend Explanation: Basic EPS = Income available to common shareholders/Weighted average number of common shares outstanding. To calculate the basic earnings per share, the weighted average number of shares of common stock outstanding is used as denominator. The shares sold must be prorated for the portion of the year they were outstanding. Stock dividends are treated as if they had always been outstanding and included at full amount for current year. Ceil Co. would use 126,500 weighted average number of common shares outstanding. Common Stock Outstanding Total number of weighted average shares outstanding Shares Outstanding Shares outstanding at 1/1 = (100,000 C/S) x (12/12) 100,000 Stock dividend at 3/31 24,000 C/S split 24,000 Stock issuance at 6/30 = (5,000 C/S) x (6/12) 2,500 Weighted average Number of shares o/s (a+b+c) 126,500 Option (A) is incorrect because it includes the prorated number of stock dividend. Stock splits are retroactively adjusted. Common Stock Outstanding Total number of weighted average shares outstanding Shares Outstanding Shares outstanding at 1/1 = (100,000 C/S) x (12/12) 100,000 Stock dividend at 3/31 24,000 C/S split x (9/12) 18,000 Stock issuance at 6/30 = (5,000 C/S) x (6/12) 2,500 Weighted average Number of shares o/s (a+b+c) 120,500 Option (B) is incorrect because it includes the prorated number of stock dividend. Stock splits are retroactively adjusted. It fails to prorate the stock issued on 6/30 Common Stock Outstanding Total number of weighted average shares outstanding Shares Outstanding Shares outstanding at 1/1 = (100,000 C/S) x (12/12) 100,000 Stock dividend at 3/31 = 24,000 C/S split x (9/12) 24,000 Stock issuance at 6/30 = (5,000 C/S) 5,000 Weighted average Number of shares o/s (a+b+c) 123,000 Option (D) is incorrect because it does not prorate the stock issuance at 6/30. Common Stock Outstanding Total number of weighted average shares outstanding Shares Outstanding Shares outstanding at 1/1 = (100,000 C/S) x (12/12) 100,000 Stock dividend at 3/31 24,000 C/S split 24,000 Stock issuance at 6/30 = (5,000 C/S) 5,000 Weighted average Number of shares o/s (a+b+c) 129,000

Answer 297

B- remember cash paid, a decrease in Acc pay means cash paid ``` Explanation: Cost of sales $450,000 Less: Decrease in inventory (160,000) Inventory purchases 290,000 Add:Decrease in accounts payable 40,000 Cash paid to suppliers $330,000 ```

Answer 298

Explanation: The correct answer is (A). The FASB of the Financial Accounting Standards Board is the apex body charged with the responsibility of determining the Generally Accepted Accounting Principles in the United States (US GAAP). To effectively carry out its various functions, FASB issues several statements, updates, and pronouncements. Accounting Standards Codification is the only authoritative literature on non-governmental US GAAP issued by FASB. Changes to it are made by issuing Accounting Standards Updates.

Answer 299

Explanation: The correct answer is Option (A). A $10,000 increase in accounts receivable means that $10,000 of the sales revenue recorded using the accrual basis during the year has not yet been paid by the customers. Under cash basis accounting, revenue is not recorded until the cash has been received, so this amount must be deducted (subtracted) to arrive at cash basis income. The $6,000 decrease in accounts payable means that total cash payments to vendors during the year exceeded the current period's accrual basis expenses. Under the cash basis, expenses are recorded when payment is made, so the $6,000 must be deducted (subtracted) to arrive at cash basis income. Cash basis income would be $100,000 - $10,000 increase in A/R - $6,000 decrease in A/P = $84,000. (B) is incorrect because it adds the decrease in accounts payable amount instead of deducting it. (C) is incorrect because it adds the increase in accounts receivable amount instead of deducting it. (D) is incorrect because it adds the increase in accounts receivable and the decrease in accounts payable amount instead of deducting it.

Answer 300

A- no gains or loss are recognize for treasury stock Explanation: No gains or losses are recognized on treasury stock transactions. If the stock is reissued at a price in excess of the acquisition cost, the excess is credited to an appropriately titled paid-in capital account. If the stock is reissued at less than the acquisition cost, the deficit is first charged against any existing balance in the appropriately named paid-in capital account. Any excess then is charged against Retained Earnings.

Answer 301

A- 260k Explanation: The freight-in cost is an inventoriable cost. The freight-out cost and the sales representatives’ salaries should both be reported as selling expenses in the year. Accounting and legal fees $ 25,000 Officers' salaries 150,000 Insurance _ 85,000 General and administrative expenses $260,000

Answer 302

Explanation: The correct answer is (C). IFRS requires that noncash investing and financing activities be disclosed in the Notes to the Financial Statements, not in the Statement of Cash flows or Statement of Financial Position.

Answer 303

A- BS, State of acti and cash flow Explanation: Nonprofit organizations are required to present at least three statements; a Statement of Financial Position, a Statement of Activities, and a Statement of Cash Flows. These statements are similar to those used by a commercial entity. Some entities may choose to also disclose the fund statements. Several formats are acceptable for nonprofit entities, however, aggregated statements must be used. Option (b), (c) and (d) are incorrect as per the above explanation

Answer 304

A- 10% of assets only Explanation: There are three tests to determine whether an identified segment of an enterprise should be reported in the enterprise’s financial statements. (1) The revenue test: the segment’s reported revenue is 10% or more of the combined revenue of all operating segments; (2) The profit (loss) test: the absolute amount of the segment’s profit or loss is 10% or more of the greater, in absolute amount, of the combined reported profit of all operating segments that did not report a loss or the combined reported loss of all operating segments that did report a loss; (3) The assets test: the segment’s assets are 10% or more of the combined assets of all operating segments.

Answer 305

D- 106k Explanation: Quasi-Endowment Funds are used by colleges and universities to account for amounts set aside by the governing board to function as endowments. Smith University should report as quasi-endowment fund net assets at December 31, the sum of the $100,000 set aside by the governing board to be invested for scholarship grants and the $6,000 of fund earnings which had not been disbursed at December 31.

Answer 306

D Explanation: The information provided in a statement of cash flows helps investors, creditors, and others to assess the reasons for differences between net income and associated cash receipts and payments, not financial position. The information provided in a statement of financial position (balance sheet) helps investors, creditors, and others to assess the enterprise’s financial position. Information in the income statement helps users evaluate past performance of a company and provide a basis for predicting future performance of the company. Comprehensive income is the change in equity of a business enterprise from transactions and other events and circumstance(s) from nonowner sources. Comprehensive income is not reported in a statement of cash flows.

Answer 307

B-347k 47k is for the adjustments Explanation: Depreciation is a noncash expense; therefore, it is added back to net income to compute net cash provided by operating activities. The gain on the sale of equipment was added to determine net income, but it did not represent an inflow of cash. Therefore, the gain must be subtracted for the adjustment. ``` Net income $300,000 Depreciation expense $52,000 Gain on sale of equipment (5,000) Adjustments 47,000 Net cash provided by operating activities $347,000 ```

Answer 308

B- Decrease all Explanation: The entry to record the acquisition of the treasury stock in excess of its original issue price using the par method will involve a debit to Treasury Stock for the par value of the stock, a debit to Additional Paid-in Capital for the amount of the premium on the original issuance, a debit to Retained Earnings for the excess of the cost of the treasury stock over the original issuance price, and a credit to Cash for the cost of the treasury shares. When the par method is used, the balance of the Treasury Stock account is classified contra to the Common Stock account. Therefore, the use of the par method of recording will result in a decrease in net common stock, a decrease in additional paid-in capital and a decrease in retained earnings.

Answer 309

A Explanation: General-purpose financial statements must include selected information on an enterprise’s operating segments. An enterprise is required to report a measure of segment profit or loss, segment assets and certain related items, but not segment cash flows or segment liabilities.

Answer 310

D Explanation: Assets, per Concepts Statement No. 4, must provide present service capacity and be controlled by the government. The definition of assets does not consider whether those resources are encumbered.

Answer 311

Explanation: The correct answer is (D). Basic Earnings per share (EPS) is computed by dividing net income less preferred stock dividends by the weighted average shares of common stock outstanding. Diluted EPS adjusts this calculation to reflect all potentially dilutive securities. To compute diluted EPS for this question, the convertible securities are assumed to have been converted at the beginning of the year. The preferred stock dividend of $45,000 is added back to the numerator (canceling out its original subtraction, since in this question we already have Net Income, Preference Dividend wasn’t subtracted and hence need not be added back) and the 30,000 shares of converted common stock are added to the denominator. The bond interest expense, net of tax, of $60,000 [($1,000,000 × 10%) × (1 - 40%)] is added back to the numerator as it was subtracted from Net Income and the 20,000 shares of converted common stock are added to the denominator. Diluted EPS = $980,000 Net income + $60,000 Bond interest (net tax) = $7.43 90,000 (CS) + 30,000 (conv. PS) + 20,000 (conv. bonds)

Answer 312

Explanation: The correct answer is (B). The loss due to hailstorms should be reported in income from continuing operations. The full amount of a realized loss must be recognized in income when it occurs.

Answer 313

A- Other rev Explanation: Hospitals typically record gifts of supplies and commodities as other revenue at fair market value at the date of the gift.

Answer 314

Explanation: An operating segment is identified as a reportable segment if it meets one or more of the three tests: revenue, profit(loss), and assets. (1) Revenue test: its revenue (including both sales to external customers and intersegment sales and transfers) is 10% or more of the combined revenue of all operating segments. (2) Profit(loss) test: its profit or loss is 10% or more of the greater of the following two absolute amounts: Combined profits of all segments that did not report losses, or the sum of all losses for all segments reporting losses. (3) Assets test:its assets are 10% or more of the combined assets of all operating segments. Segments A, B, C, and E have revenue greater than $3,275,000, which is 10% of the combined revenue. They also have profits greater than $580,000, which is 10% of the combined profits (no segments reported losses). Segments A, B, C, D, and E all have assets greater than $6,750,000, which is 10% of the combined assets. Only segment F does not meet at least one of the three tests. Therefore, Correy has five reportable segments.

Answer 315

D Explanation: A distribution for loans made by the enterprise is a cash outflow from investing activities.

Answer 316

B Explanation: Other comprehensive income has no effect on direct adjustments to equity accounts, such as capital stock transactions and transactions related to retained earnings.

Answer 317

D 7.94 Explanation: Calculating diluted earnings per share (EPS) is a two-step process. The first step is to compute basic EPS and the second is to determine the per share effect of each dilutive security. Basic EPS is computed by dividing income available to shareholders (IAC) by the weighted average number of shares outstanding during the period. ``` Shares Outstanding Months Outstanding Weighted Average 15,000 3/12 3,750 12,500 2/12 2,083.333 17,000 7/12 9,916.667 Totals 12/12 15,750Basic EPS would be $125,000 / 15,750 = $7.94. The incentive stock options are potentially dilutive securities. A security is only dilutive if the inclusion of the security in the computation of EPS results in a smaller EPS or increases the loss per share. If the average market price is higher than the exercise price the options are dilutive. If the average market price is less than the exercise price the options are anti-dilutive. Since the market price of $25 is less than the exercise price of $30 these options are anti-dilutive and have no per share effect. The diluted EPS is the same as basic EPS. ```

Answer 318

D Explanation: The savings portion of key executives' life insurance policies is represented by the growing cash surrender value of the policies, as the entity continues to pay policy premiums; the entity classifies the cash surrender value of these life insurance policies as noncurrent assets; and the entity computes its annual life insurance expense by deducting the increase in cash surrender value and any dividends received from the annual premiums paid. Since the answers for A., B., and C. are all correct, the best answer for this question is D., all of the above.

Answer 319

A Explanation: In reporting net cash flow from operating activities on the statement of cash flows under the indirect method, net income is adjusted to reconcile it to net cash flow from operating activities. Bear would have a $100,000 addition to net income in the operating activities section because the sale of equipment resulted in a $100,000 loss that it would need to reconcile. Bear would have a $400,000 cash inflow in the investing activities section on the cash received from the sale of the equipment.

Answer 320

B Explanation: Investments are assets that are held for control, appreciation, regular income, or a combination of the these. Examples include stocks, bonds, subsidiaries, land held as a future plant site, and the cash surrender value of life insurance. Also in this category are special purpose funds such as bond sinking funds and plant expansion funds.

Answer 321

C Explanation: Conditional donations = Recognize when earned. Conditional donations are not revenues until they become unconditional or the conditions are substantially met. Good faith deposits associated with conditional promises would be recorded as a liability "refundable advance". The use of the $1,000,000 gift is conditional upon raising matching funds from others. Until the matching funds are received (or the condition has been substantially met), the monies contributed are payable back to the donor. No revenue is recognized. Option (a) is incorrect because the donations are conditional liability to refund, hence it cannot be reported as support with donor restrictions. Option (b) is incorrect because the donations are conditional liability to refund, hence it cannot be reported as support without donor restrictions. Option (d) is incorrect because although a material conditional gift would likely be disclosed, it would also be reported as a refundable advance, a liability on the face of the financial statements.

Answer 322

B Explanation: Collection of a note receivable from a related party would be reported as an investing activity.Option (a) is incorrect because repaying a loan is a financing activity.Option (c) is incorrect because a collection on sales from customers is a part of operating activity.Option (d) is incorrect because payment or refund of taxes is a part of operating activities.

Answer 323

C Explanation: The bequest of $400,000 received by the foundation from the estate of the benefactor who specified that the bequest was to be used for hiring teachers to tutor handicapped students restricted. Restricted sources are financial resources that are externally restricted for specified purposes. On the other hand, the board designated resources of $200,000 are unrestricted. Restrictions imposed by the Board of Trustees may be removed by the Board; they therefore do not impose restrictions as to when or how the resources may be used and should not be presented in the foundation's financial statements as restrictions.

Answer 324

B Explanation: The operating cycle of an enterprise is the average period of time between the expenditure of cash for goods and services and the date those goods and services are converted into cash. Thus, it is the average length of time from cash expenditure, to inventory, to sale, to accounts receivable, and back to cash. A one-year time period is to be used as a basis for the segregation of current assets in cases where there are several operating cycles occurring within a year. Since the company in question has a six-month operating cycle, it has two operating cycles within a year. Therefore, the one-year (i.e., twelve month) time period should be used as the basis for determining the amount of prepaid insurance to be reported as a current asset; the remaining 12 months of prepaid insurance would be considered a long term asset.

Answer 325

C ``` Explanation: January 1, beginning balance 100,000 March 1, issued common stock 15,000 June 1, resold treasury stock 2,500 September 1, balance 117,500 September 1, 2-for-1 split 117,500 Year-end balance 235,000 ```

Answer 326

C Explanation: Contributed services shall be recognized as revenue if the services received (a) create or enhance nonfinancial assets or (b) required specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Services requiring specialized skills are provided by accountants, architects, carpenters, doctors, electricians, lawyers, nurses, plumbers, teachers, and other professionals and craftsmen. Veterinarian and preparation of financial statements would require professional services, hence recorded as contribution revenue $12,500 ($8,000+$4,500). Unskilled services like walking a dog and volunteering to be a receptionist does not help the NFP in defraying its expenses. Option (a) is incorrect because preparing books for audit require professional services and should be included in contribution revenue. Option (b) is incorrect because preparing books for audit require professional services and should be included in contribution revenue. Volunteering the cost of a receptionist is unskilled services and should be excluded. Option (d) is incorrect because as it includes unskilled services rendered by a teacher in walking the dog.

Answer 327

D- Add to income Explanation: The amortization of bond discount on long-term debt is reported as an addition to income in the operating activities section of a statement of cash flows prepared using the indirect method

Answer 328

D yes to both Explanation: An enterprise shall report a measure of profit or loss and total assets for each reportable segment. These measures are generally based upon the measures as reported to, and used by, the chief operating decision maker, and may include revenues from external customers; revenues from transactions with other operating segments of the same enterprise; interest revenue; interest expense; depreciation, depletion, and amortization expense; unusual items; equity in the net income of investees accounted for by the equity method; income tax expense or benefit; and significant other noncash items. Additionally, if 10% or more of enterprise revenue comes from one customer, the segment making the sales must be disclosed.

Answer 329

B- Teacher is program costs Explanation: Not-for-profit organizations are required to report expenses based on functional categories. Activities that result in goods and services being distributed to beneficiaries, customers, or members that fulfill the purposes or mission for which the organization exists are reported as program services. Teacher salaries for a nongovernmental not-for-profit educational institution would be reported as program services because providing student instruction is part of the institution’s mission. Publicity costs, management salaries, and fundraising expenses would be reported as supporting activities. Supporting activities are activities of a not-for-profit organization other than program services. Option (a), (c) and (d) are incorrect because these costs are classified as supporting services (secondary to the mission).

Answer 330

Explanation: The correct answer is (A). Income from continuing operations includes revenues and expense items (and gain and losses) is calculated as follows Sales $575,000 Interest Revenue 25,000 Cost of sales $240,000 Administrative expenses 70,000 Sales commissions 50,000 Freight out 15,000 Loss on early retirement of long term debt 20,000 Uncollectible accounts expense 15,000 Less: Loss on Equipment Sales 10,000 (420,000) Income from continuing operations before taxes $180,000 Income taxes (37,800) Income from continuing operations after taxes $142,200 Note: The opening and closing stock of finished goods inventory should not be considered as they would already be included in the cost of sales. (i.e. Cost of sales = Opening stock of finished goods + purchases – closing stock of finished goods).

Answer 331

B Explanation: The community foundation is a nonprofit organization. Expenses of nonprofit organizations are reported in two categories: (1) program services and (2) supporting services. Program services are related directly to the primary missions of the nonprofit organization. Supporting services do not relate to the primary missions of the nonprofit organization and include such costs as management and general administration, membership development, and fund-raising. Management and general administration costs include such costs as board meetings, business management, record keeping, budgeting, accounting, and overall direction and leadership.

Answer 332

Explanation: The correct answer is (C). A cash payment to the government for taxes is an example of a cash outflow transaction.

Answer 333

B Explanation: In the period in which a component of an entity either has been disposed of or is classified as held for sale, the income statement of a business enterprise for current and prior periods shall report the results of operations of the component in discontinued operations in the period(s) in which they occur. Gain from sale of division assets on Feb 26 $90,000 Less: Operating loss during the fiscal year (50,000) Gain on disposal of segment, before income taxes $40,000

Answer 334

C 150k Explanation: The comprehensive income items will be presented in the following manner: Sales $800,000 Cost of goods sold (600,000) Operating expenses (110,000) Non-Operating Gain 35,000 Foreign currency translation gain (part of OCI) 25,000 Total $150,000 Option (A) is incorrect because it is the income from continuing operations. Option (B) is incorrect because it is the net income. Option (D) is incorrect because it does not include the non-operating gain.

Answer 335

B Explanation: Information faithfully represents what it purports to represent. Faithful representation must be complete, neutral, and free from error. Information is relevant if it has the capacity to make a difference in a decision by helping users form predictions about the outcomes of past, present, and future events or confirm or correct prior expectations. For information to be relevant, it must have either predictive or confirmatory value, or both. Options (A) and (C) are incorrect because neutrality is not an ingredient of relevance. Option (D) is incorrect because neutrality is one of the three ingredients of faithful representation.

Answer 336

C Explanation: The income statement of a business enterprise for current and prior periods shall report the results of operations of the component in discontinued operations in the period(s) in which they occur. The loss on disposal of the segment in year 4 is $500,000 [$300,000 + $200,000].

Answer 337

B cash flow Explanation: Nonprofit organizations must present, at a minimum, a statement of financial position, a statement of activities, and a statement of cash flows.

Answer 338

Explanation: The correct answer is (A). Cash flows from investing activities include: (1) making and collecting loans (excluding those acquired specifically for resale) (2) acquiring and disposing of property, plant and equipment, and other productive assets (3) purchases, sales, and maturities of debt and equity securities (excluding those acquired specifically for resale). The sale of investment in Blue Co. would be an investing activity cash inflow of $ 75,000 and the common stock purchase from Brown Co. would be an investing activity cash outflow of $38,000. The $75,000 cash in less $38,000 cash out equals net $37,000 cash from investing activities. Dividends received on stock are classified as cash flows from operating activities. (b) is incorrect because it includes the dividend received on the Grey Co.'s stock, which should be reported as cash flows from operating activities (i.e. $47,500= $75,000 + $10,500 - $38,000). (c) is incorrect because it excludes the cash used to purchase the common stock from the Brown Co., and deducted from the proceeds received on sale of investment from Blue Co to arrive at net cash from investing activity. (d) is incorrect because it excludes the cash used to purchase the common stock from the Brown Co., and includes the dividend received on the Grey Co.'s stock, which should be reported as cash flows from operating activities (i.e. $85,500 =$75,000 + $10,500).

Answer 339

A Explanation: The Emerging Issues Task Force (EITF) was established by the FASB in July 1984. The objective of the EITF is to assist the FASB and its staff in the identification of accounting issues and implementation problems on a timely basis. While the EITF does not have the authority to issue authoritative accounting standards, the Chief Accountant of the SEC attends EITF meetings and takes the position that since an EITF consensus sets the tone for future accounting,. The SEC’s Division of Corporation Finance reviews documents that publicly held companies are required to file with the SEC. There is no known specific Division of Internal Affairs or Division of Accounting.

Answer 340

Explanation: Revenue from charity care is excluded $25,000 and provisions for bad debts is not considered while calculating net patient revenue. Gross patient services revenue $775,000 Less: Charity care include in gross revenue (25,000) Less: Contractual adjustments (70,000) $ 680,000 Option (b) and (d) are incorrect as per the above explanation. Option (c) is incorrect because revenue from charity care of $25,000 should be excluded.

Answer 341

Explanation: The correct answer is (D). Planet Corp. should report cash collected at $428,200, which is sales for the year reduced by the total increase in accounts receivables (i.e. $438,000 - $9,800). a Accounts receivable, net, Dec 31 $30,400 b Accounts receivable, net, Jan 1, $21,600 c Net increase in accounts receivable (a-b) $8,800 d Uncollectible accounts $1,000 e Total increase in accounts receivable (c+d) $9,800 The accounts receivables are given at their net amounts. The uncollectible accounts ($1,000) is added back to the change in net accounts receivable to bring it to the gross amount. No accounts receivable was written-off during the year allowance for uncollectible accounts will be added back to the account’s receivables, to arrive at a total increase in accounts receivable at $9,800. Dr: Cash (plug) $428,200 Dr: A/R (change) $9,800 Cr: Sales $438,000

Answer 342

Explanation: Consolidated statements should not include gain or loss on transactions among the companies in the group. Any intercompany profit or loss on assets remaining within the group should be eliminated. Therefore, the carrying amount of the equipment should be reported at the cost of the equipment to the purchasing affiliate (Water) less the entire gain recorded by the selling affiliate (Fire).".

Answer 343

Explanation: The SEC is often among the first to identify emerging issues and areas of accounting that need attention. When they do, the staff refers these issues to the FASB and its interpretative bodies for guidance. Publicly traded entities frequently clear accounting treatment with SEC staff in advance of a transaction or event being recorded in the financial statements. The Chief Accountant of the SEC attends the FASB’s Emerging Issues Task Force (EITF) meetings and takes the position that since an EITF consensus sets the tone for future accounting. The SEC does have broad statutory powers to make, amend, and rescind any rules and regulations that may be necessary to carry out the provisions of the law.

Answer 344

Explanation: As part of its simplification initiative, FASB issued Accounting Standards Update 2015-01 which eliminates the concept of an extraordinary item from U.S. GAAP. These formerly “extraordinary” gains/losses (i.e., gains/losses which are unusual AND infrequent) are now reported as part of Non-Operating gains/losses. Option (B) is incorrect because comprehensive income includes net income and other comprehensive income. Option (C) is incorrect as unusual and infrequent gains are reported as a part of Non-Operating gains/losses and not operating income. Option (D) is incorrect because discontinued operations are reported separately.

Answer 345

Explanation: The cumulative-effect type accounting change made in the third quarter should be accounted for in retained earnings; no cumulative effect of the change should be included in net income of the third quarter. The $12,000 of calendar-year property taxes are allocated to the third quarter; annual property taxes should be accrued or deferred at each interim reporting date to provide an appropriate cost in each period and thus are allocated ratably to each interim period of the year. Net income for the quarter, as reported $95,000 Add: Cumulative-effect loss resulting from change in accounting principle included in third quarter 16,000 Corrected net income for third quarter $111,000

Answer 346

Explanation: Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income is divided into net income and other comprehensive income (OCI). OCI includes revenues, expenses, gains, and losses that are excluded from net income. Instead, they are listed after net income on the income statement. These items have not yet been realized. In other words, the underlying transaction has not been completed or settled yet. Examples include: foreign currency items; certain pension adjustments; unrealized gains and losses on certain investments; and gains and losses on derivatives. Comprehensive income is $10,000 ($11,000 – 3,000 + 2,000). The cumulative effect of a change in accounting principle would be applied to beginning retained earnings. Increases in common stock are not reflected in income, but rather on the balance sheet.

Answer 347

Explanation: Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income is divided into net income and other comprehensive income (OCI). OCI includes revenues, expenses, gains, and losses that are excluded from net income. Instead, they are listed after net income on the income statement. These items have not yet been realized. In other words, the underlying transaction has not been completed or settled yet. Examples include: foreign currency items; certain pension adjustments; unrealized gains and losses on certain investments; and gains and losses on derivatives. Comprehensive income is $10,000 ($11,000 – 3,000 + 2,000). The cumulative effect of a change in accounting principle would be applied to beginning retained earnings. Increases in common stock are not reflected in income, but rather on the balance sheet.

Answer 348

Explanation: Under the cost method, the cost of the treasury stock is reported as an unallocated reduction of the stockholders' equity. Under this method, the treasury stock did not reduce the Common Stock account prior to their cancellation. Par value of common stock before recording cancellation of treasury stock $540,000 Less: Par value of treasury stock canceled (50,000 shares × $2.50 par value) (125,000) Par value of common stock outstanding after cancellation of treasury stock $415,000

Answer 349

Explanation: The correct answer is (C). A transaction that is unusual in nature or infrequent in occurrence should be reported as a component of income from continuing operations. It cannot be shown as net of taxes as tax is a separate line item to arrive at the income from continuing operations. Option (A) and (B) are incorrect because normally the unusual and infrequent gains or losses reported as extraordinary item. With effect from December 2015, the Financial Accounting Standards Board (FASB) has eliminated the concept of extraordinary items from GAAP. Option (D) is incorrect because component of income from continuing operations are not shown net of taxes.

Answer 350

Explanation: Measures of service accomplishments will focus on the outputs and outcomes. Measures of service efforts might include financial as well as nonfinancial information applied to a specific service. Measures that relate service efforts to service accomplishments may consider efficiency assessments or cost-outcome evaluations that report costs per unit of outcome or result.

Answer 351

Explanation: Historical cost/constant purchasing power accounting is a method of accounting based on measures of historical prices in units of a currency, each of which has the same general purchasing power.

Answer 352

Explanation: All non-profit organizations are required to recognize depreciation in general purpose financial statements. They would use the same criteria in allocating the depreciable cost of fixed assets over their estimated useful lives as commercial enterprises. The freezer is a fixed asset that the not-for-profit must depreciate. The building is under construction and thus is not yet depreciated. Land is never depreciated. The linens would be classified as supplies, not fixed assets, and thus need not be depreciated.

Answer 353

Explanation: The theoretical justification for the par value method is that the purchase of treasury stock is in fact a constructive retirement of those shares; therefore, reacquired stock is recorded essentially by reversing the amounts at which the stock was originally issued and adjusting any difference to Additional Paid-In Capital or Retained Earnings . Reissuance of the stock is treated as if it were a new issue, i.e., the excess purchase price received over par is credited to Additional Paid-In Capital .

Answer 354

Explanation: When one company sells merchandise to an affiliate at a price above cost, the ending inventory of the purchasing affiliate contains an element of unrealized gross profit. The gross profit is not realized to the economic entity until the inventory is sold to an unaffiliated company. The amount of unrealized gross profit in inventory must be eliminated in the preparation of consolidated financial statements. ``` Scroll's ending inventory acquired from Pirn ($100,000 - $80,000) $20,000 Times: Pirn's gross profit percentage [100% - ($350,000 / $500,000)] × 30% Unrealized intercompany profit in Scroll's ending inventory $ 6,000 ```

Answer 355

Explanation: Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Loss on discontinued operations is part of comprehensive income.

Answer 356

Explanation: Financial statements should include disclosures of material-related party transactions other than (1) compensation arrangements, (2) expense allowances, (3) other similar items in the ordinary course of business, and (4) transactions that are eliminated in the preparation of consolidated or combined financial statements. Thus, Dean should report related party disclosures totaling $175,000 ($125,000 + $50,000), the amount of the loans to officers. The amounts for officers' salaries, officers' expenses, and intercompany sales should not be disclosed as related party transactions.

Answer 357

Explanation: Pare reports the same amount of common stock as it did before the purchase; $100,000. No new Pare common stock was issued for the purchase. Pare's Kidd common stock is not Pare common stock.

Answer 358

Explanation: The correct answer is Option (B). Indirect method (Reconciliation Approach) - Income from continuing operations is reconciled to net cash flows from operating activities. When applying indirect method, begin with net income and make 3 types of adjustments. Non-cash items are adjusted Non-operating items are adjusted Changes in balances of accrual related accounts are adjusted. Net cash flows provided by operating activities is reported at $40,000. Operating Activities (Indirect Method) Net Income $70,000 Add: Depreciation expense $10,000 Less: Increase in A/R ($20,000) Less: Gain on sale of equipment ($10,000) Less: Pre-paid insurance ($40,000) Add: Increase in A/P $30,000 Net cash provided (used) by operating activities $40,000 An increase in non-trade notes payable is a cash inflow from financing activities.

Answer 359

Explanation: Non-accelerated filers (i.e., those that have less than $75 million of average annual cash flow) have 90 days after the end of the fiscal year to file the Form 10-K. Companies sometimes elect to send their Form 10-K to their shareholders in lieu of providing shareholders with an annual report. The Form 10-K typically contains more, not less, detailed information about the company’s financial condition than the traditional annual report to shareholders. Large companies with an average annual cash flow of more than $700 million are considered to be “large accelerated filers.” Large accelerated filers must file their 10-K within 60 days after their fiscal year ends.

Answer 360

Explanation: The correct answer is (A). Financial statements issued by a development stage enterprise should be presented in conformity with GAAP that apply to established operating enterprises. These accounting principles determine whether a cost incurred by a development stage enterprise should be charged to expense when incurred or should be capitalized or deferred. Lex should capitalize both the cost of the leasehold improvements, equipment, and furniture and the cost of the security deposits. Research and development ($750,000 + $900,000) $1,650,000 Laboratory operations ($175,000 + $550,000) 725,000 General and administrative ($225,000 + $685,000) 910,000 Depreciation ($25,000 + $115,000) 140,000 Total amount of costs charged to operations $3,425,000

Answer 361

A- 4800 Explanation: To determine the cash balance to be reported at year-end, the checkbook balance must be adjusted as follows: The $2,000 check payable to Ral, dated 1/2, year 9, properly is not included in the 12/31, year 8 checkbook balance. Because the check is dated after the balance sheet date, the amount of the check should be reported as a receivable at 12/31, year 8. Checkbook balance, 12/31, year 8 $ 5,000 Add check payable to vendor recorded on 12/31, year 8 but not mailed until 1/10, year 9 300 Less check payable to Ral returned by bank on 12/30, year 8 marked NSF, not redeposited until 1/2, year 9 (500) Cash balance, 12/31, year 8 $ 4,800

Answer 362

B- Foreign-currency Explanation: Comprehensive income is divided into net income and other comprehensive income (OCI). OCI includes revenues, expenses, gains, and losses that are excluded from net income. An entity must classify items of other comprehensive income by their nature, in one of these classifications: foreign currency items, pension adjustments, unrealized gains and losses on certain investments in debt and equity securities, and gains and losses on cash flow hedging derivative instruments. Included in foreign currency items are foreign currency translation adjustments. Dividends paid to a shareholder, additional capital contribution, and deferred revenue are not components of comprehensive income.

Answer 363

Explanation: The correct answer is (B). Comprehensive income reflects all changes from owner and nonowner sources. The other comprehensive income items are: unrealized G/L on AFS securities, unrealized G/L on pension costs, foreign currency translation adjustments, and unrealized G/L on certain derivative transactions.

Answer 364

A- all of them Explanation: An entity is required to disclose all significant concentrations of credit risk arising from all financial instruments.

Answer 365

Explanation: The correct answer is (B). Cash outflows for investing activities are disbursements made by the enterprise to acquire debt and equity instruments of other entities (other than cash equivalents and securities classed as trading debt securities), and payments at the time of purchase or soon before or after purchase to acquire property, plant, and equipment and other productive assets.

Answer 366

C- 700k Explanation: The loss is $700,000. The tax rate is not considered in the calculation and is included as a distractor, along with the fact that it's an earthquake.

Answer 367

D- Gov controlled Explanation: Assets, per GASB Concepts Statement No. 4, must provide present service capacity and be controlled by the government.

Answer 368

A- $0 services provided is not technical Explanation: Contributions are unconditional donations, or gifts, of assets, including both property (either for general operating purposes or restricted for a specific purpose) and services (under certain limited circumstances). The fair value of donated services (e.g., doctors, nurses) are reported as both an expense and a revenue if (1) the services would otherwise be purchased; (2) the value of the services is measurable; and (3) the entity controls the employment and duties of the service donors (i.e., there is the equivalent of an employer-employee or hired contractor relationship). Contributions of services are recognized as revenues only if nonfinancial assets are created or enhanced, and special skills are required that would otherwise be purchased. There should be no contribution revenue recorded for the turtle food transferring service provided by the clerk. Though the services may have otherwise been purchased and their value is measurable, there is no effective employer-employee relationship, no non-financial assets were created or enhanced, and no special skills were required. Option (b), (c) and (d) are incorrect as per the above explanation.

Answer 369

Explanation: The correct answer is (B). The establishment of an endowment requires a nonprofit organization (NPO) to recognize restricted contribution revenue. The NPO includes an asset in its balance sheet. When a beneficiary has an unconditional right to specific cash flows from a trust, the beneficiary interest is measured and subsequently remeasured at fair value, using a valuation technique such as the present value of estimated expected future cash flows. The present value of the income is estimated at $95,000. Journal Entry would be: Dr. Beneficiary Interest in Trust 95,000 Cr. Net Assets with Donor Restrictions: Contributions 95,000

Answer 370

Explanation: Annual property taxes should be accrued or deferred at each interim reporting date to provide an appropriate cost in each period and allocated ratably to each interim period of the year. Because the unanticipated repairs to the office equipment benefit the last three quarters of the year, each of these periods should be charged with an appropriate portion of the cost by the use of accruals or deferrals. Annual property taxes ($90,000 / 4) $22,500 Unanticipated repairs incurred in April ($150,000 / 3) 50,000 Expense reported in 6/30, year 2 income statement $72,500

Answer 371

Explanation: Transactions between affiliates are considered related party transactions. Related party disclosures should include, among other things, the dollar amount of purchases during the year and the amounts due from or to the affiliate at the balance sheet date.

Answer 372

Explanation: | A reportable segment's assets must be 10 percent or more of the combined assets of all operating segments.

Answer 373

Explanation: While consolidating, inter-company transactions are eliminated, as consolidation results in the presentation of a single set of financial statements which treats the acquirer and the acquiree as a single entity. The revenue in the consolidated income statement will be the sum of the revenues of Pare and Shel minus the inter-company sales. Thus inter-company sales from Pare to Shel = (Revenue of Pare + Revenue of Shel) - Consolidated revenue = ($400,000 + $280,000) - $616,000 = $64,000. Options (A), (B) and (C) are incorrect due to inaccurate calculations.

Answer 374

Explanation: The amount that Rama discloses as a restriction of retained earnings as a result of treasury stock held is $60,000 [(20,000 - 15,000) × $12 per share].

Answer 375

Explanation: Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of net income. Both the $28,000 from dividends that were declared and paid and the $200,000 from issuance of common stock are cash flows from financing activities, not operating.With the limited information provided it is best to use the indirect method to compute the cash provided by operating activities. Computation under this method is done by converting net income to net cash flow from operating activities .Start with net income and then make adjustments to reconcile net income to net cash provided by operating activities.Take the $78,000 net income less the $82,000 increase in accounts receivable plus the $24,000 increase in accounts payable and the result is $20,000 net cash provided by operating activities. Option (b) is incorrect because it is retained earnings.Option (c) is incorrect because it is the cash balance.Option (d) is incorrect because it is the sum of common stock and retained earnings ($250,000 = $200,000 + $50,000).

Answer 376

Explanation: The correct answer is (C). Available for Sale securities are valued at the fair market value (FMV) on the balance sheet date. Any unrealized gain or loss is reported in the statement of comprehensive income. At the end of Year 1, Ball Corp. would have valued AFS securities at $130,000, which is FMV on that date with a loss of $20,000 in other comprehensive income. Similarly, At the end of Year 2, they would be valued at $160,000 with a profit of $30,000 in other comprehensive income. As the cash flow has not changed at all, the same would not be adjusted in the Statement of Cash Flows.

Answer 377

Explanation: Goodwill is the excess of the cash paid (i.e cost) versus the fair value of the net assets. If the 20% non-controlling interest in Small Inc. was $425,000, then 100% cost of Small would be $2,125,000 [$425,000/20%]. Cash of $2,125,000 less fair value of $2,000,000 creates goodwill of $125,000.

Answer 378

Explanation: An entity may choose from two possible formats to report comprehensive income. The income statement and the statement of comprehensive income are separate statements in the two-statement format. Comprehensive income must be displayed prominently within a financial statement in a full set of generalpurpose financial statements. Comprehensive income must be shown on the face of one of the statements, not just in the notes to the financial statements.

Answer 379

Explanation: The IASB Conceptual Framework uses the accrual basis of accounting for assessing the entity’s past and present performance. Modified accrual accounting is used by US state and local governments. There is no such thing as an international or modified-international accrual basis of accounting.

Answer 380

Explanation: Wages payable has increased from the beginning to the end of the year, which means that a portion of the salaries has not been paid. Therefore, wages paid are less than salary expense reported on an accrual basis. The cash paid for wages is determined by subtracting the increase in wages payable from the beginning to the end of the year from reported salary expense.

Answer 381

Explanation: Contribution revenue will include the unconditional pledges of $50,000 and $25,000 restricted for scholarships. Contribution revenue ($50,000 + $25,000) = $75,000. Conditional pledge of $10,000 recognized when earned, i.e., conditions are substantially met. Option (a) is incorrect because the unconditional pledge of $50,000 should be included in contribution revenue. Option (b) is incorrect because the unconditional pledge of $50,000 should be included in contribution revenue and conditional pledge of $10,000 should be recognized when conditions are substantially met, that is when the graduate dies. Option (d) is incorrect because the conditional pledge of $10,000 should be recognized when conditions are substantially met, that is when the graduate dies, at present it should be excluded from contribution revenue.