Conceptual Framework Part 4

Question 1

Compared to the accrual basis of accounting, cash basis of accounting understates income by the net decrease during the accounting period of:

Answer 1

Accrued Expenses

Summary:
Higher when accounts receivable decrease
Lower when accrued expenses decrease

Question 2

Benefits of an employee benefit plan must include

Answer 2

Total Assets, Total Liabilities, Net Assets reflecting all investments at fair value and Net Assets available for benefits.

Question 3

Defined Benefit (DB) Plan

Answer 3

Is a plan that has a formula determining the benefits provided the participants. DB plans are usually pension plans, but could include other post retirement plans.

Question 4

Modified Cash Basis

Answer 4

Is a hybrid method that combines features of both the cash and accrual basis. Modification to the cash basis include:
capitalization of assets and the accrual of income taxes
The resulting balance sheet would include long term assets, accumulated depreciation and liability for income taxes. The income statement would report depreciation expense and income tax expense. Modified cash basis FS are intended to provide more information to users than cash basis statements while continuing to avoid complexities of GAAP.

Question 5

Statements include in set of personal financial statements

Answer 5

1) Statement of financial condition that presents assets and liabilities at estimated current value on an accrual basis where personal net worth is the difference between total assets and liabilities
2) statement of changes in net worth (optional) that shows sources of increases and decreases in net worth

Question 6

Statement of changes in net assets available for benefits of an employee benefit plan must include

Answer 6

Change in fair value of each significant type of investment
Investment income
contribution from employers
contributions from participants
contributions from other identified sources

Question 7

Statement of changes in net assets decrease for benefits of an employee benefit plan must include

Answer 7

Benefits paid to participants
payments to insurance entities to purchase contracts that are excluded from plan assets
administrative expense

Question 8

Net Realizable Value Definition

Answer 8

is one of the attributes used to measure assets and liabilities. It is the non-discounted amount of cash, or its equivalent, that is expected to be received (paid) on conversion (liquidation) of the asset (liability) in due course of business less direct costs. Net realizable value is the settlement cost and is used for short term receivables and some inventories, trade payable, and warranty obligations.

Question 9

Personal Financial Statements valuation of assets:

Answer 9

users consider estimated current value information to be more relevant for decisions than historical cost information.

Question 10

Form 10-k Definition

Answer 10

Is the annual report required to be filed with the SEC by all publicly traded companies. It provides a comprehensive report of a company’s business and financial condition, including audited financial statements. The report must be filed within 75 days after the company’s fiscal year end.

Question 11

Modified Cash Basis Operating Expenses

Answer 11

In converting expenses from a cash basis to an accrual basis, a prepaid expense increase must be deducted because it is an expense on a cash basis and on an accrual basis. An increase in accrued liabilities must be added because it is an expense incurred but not paid.