Conceptual Framework, Standards #1

Question 1

Restricted Cash

Answer 1

Must be segregated from “regular” cash for reporting purposes because it is not readily available for general use. Classified as current or long-term depending upon the date of availability for disbursement Should be disclosed in notes.

Question 2

Compensating balances

Answer 2

Should be separately classified as being maintained as a compensating balance. Classified as current or noncurrent based upon the terms of the agreement requiring the compensating balance. Details of the arrangement should be disclosed in the notes.

Question 3

Cost of Goods Sold Formula

Answer 3

Beg Finished Goods
+Costs of Goods Manufactured
-Ending Finished Goods
=Cost of Goods Sold

Question 4

Cost of Goods Manufactured Formula

Answer 4

Beg WIP
\+Direct Materials Used
\+Direct Labor
\+Factory Overhead
-Ending WIP
=Cost of Goods Manufactured

Question 5

Expense from Cash Basis to Accrual Basis

Answer 5

Payments
\+Beg Prepaid
\+End Payable
-End Prepaid
-Beg Payable
=Expense

Question 6

Revenue from Cash Basis to Accrual Basis

Answer 6

Cash Fees Collected
\+End AR
-Beg AR
\+Beg Unearned Fees
-End Unearned Fees
=Accrual Basis Service Revenue

Question 7

Present Value

Answer 7

The current measure of an estimated future cash inflow or outflow, discounted at an interest rat for the number of periods between today and the date of the estimated cash outflow

Question 8

Primary Objective of Accounting

Answer 8

Measure Income

Question 9

Accrual

Answer 9

Recognition prcedes cash receipt/expenditure

Revenue - earned by not received
Expense - incurred by not paid

Question 10

Deferral

Answer 10

cash receipt/expenditure precedes recognition

Revenue - cash received but not earned
Expense - cash paid but expense not incurred

Question 11

Formula to calculate cash paid to suppliers

Answer 11

CGS
-Beg Inventory
\+End Inventory
\+Beg AP
-End AP

Question 12

Operating Activities

Answer 12

Generally include transactions that enter into the determination of net income and include production and delivery of goods and services, interest and dividends received, and payment of interest.

Question 13

Investing Activities

Answer 13

All transactions related to the making or collecting of loans and the acquiring and disposing of debt, equity instruments, or PP&E

Question 14

Financing Activities

Answer 14

All transactions related to obtaining resources from owners and providing them with a return on, and a return of, their investment, and to obtaining and repaying debt.

Question 15

Deferred Tax

Answer 15

Generally computed by multiplying the amount of the temporary difference by the current income tax rate.

A deferred tax liability is a credit balance ( a future taxable amount) and a deferred tax asset is a debit balance (a future deductible amount). The liability will be paid (asset will be recovered) in future years.

FASB ASC 740-10-20

Question 16

Balance Sheet

Answer 16

Financial position at the end of the period

Question 17

Income Statement

Answer 17

Earnings (loss) for the period

Comprehensive income or loss for the period

Question 18

Statement of Cash Flows

Answer 18

Cash flows during the period

Question 19

Statement of Changes in Owners’ Equity and the Statement of Retained Earnings

Answer 19

Investments by and distributions to owners during the period

Question 20

Cash Inflows from Operating Activities

Answer 20

(a) Cash receipts from sales of goods or services
(b) Cash receipts from interest and dividends on investments in another enterprise
(c) All other cash receipts that are not classified as either investing or financing activities

Question 21

Cash outflows classified as operating activities

Answer 21

(a) Cash payments to acquire materials for manufacture or goods for resale
(b) Cash payments to other suppliers and employees for goods and services
(c) Cash payments to governments for taxes, duties, other fees, or penalties
(d) Cash payments to lenders and other creditors for interest
(e) All other cash payments that are not classified as investing or financing activities

Question 22

Cash inflows from investing activities

Answer 22

(a) Cash receipts from collections or sales of loans made by the enterprise and of other debt instruments that are purchased by the enterprise
(b) Cash receipts from sales of equity securities of other enterprises
(c) Cash receipts from the sales of property, plant, and equipment and other productive assets

Question 23

SFAC 4

Answer 23

indicates that financial reporting by nonbusiness organizations should provide information useful to present and potential resource providers (e.g., creditors, suppliers, employees, donors, taxpayers) and meet seven objectives:

Objective 1: Financial reporting by nonbusiness organizations should provide information that is useful to present and potential resource providers and other users in making rational decisions about the allocation of resources to those organizations.

Objective 2: Financial reporting should provide information to help present and potential resource providers and other users assess the services that a nonbusiness organization provides and its ability to continue to provide those services.

Objective 3: Financial reporting should provide information that is useful to present and potential resource providers and other users in assessing how managers of a nonbusiness organization have discharged their stewardship responsibilities and about other aspects of their performance.

Objective 4: Financial reporting should provide information about the economic resources, obligations, and net resources of an organization and the effects of transactions, events, and circumstances that change resources and interests in those resources.

Objective 5: Financial reporting should provide information about the performance of an organization during a period. Periodic measurement of the changes in the amount and nature of the net resources of a nonbusiness organization and information about the service efforts and accomplishments of an organization together represent the information most useful in assessing its performance.

Objective 6: Financial reporting should provide information about how an organization obtains and spends cash or other liquid resources, about its borrowings and repayment of borrowings, and about other factors that may affect an organization’s liquidity.

Objective 7: Financial reporting should include explanations and interpretations to help users understand financial information provided.

Question 24

cash basis income is:

Answer 24

higher when accounts receivable decrease.

lower when accrued expenses decrease.

Question 25

AU-C 800, Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks, identifies four comprehensive bases of accounting other than generally accepted accounting principles (AU-C 800.07)

Answer 25

1. Cash basis
2. Tax (income) basis
3. Regulatory basis
4. Contractual basis

Question 26

Cost of Goods Sold

Answer 26

The direct costs attributable to The production of the goods sold by a company. This amount includes the cost of the materials used in crating the good along with the direct labor cost used to produce the good.

Question 27

SEC Steps in Rulemaking Process

Answer 27

Concept Release
Rule Proposal
Rule Adoption

Question 28

Consolidated Statements reflect which concept?

Answer 28

Economic Entity (…as if the consolidated group were a single economic entity)

Question 29

Does IFRS or GAAP require more footnote disclosure?

Answer 29

IFRS since it is principle-based with fewer rules and standards for more disclosure of reasoning

Question 30

Current Value of an Investment in Life Insurance

Answer 30

Cash value less the amount of loans against it

Question 31

Comprehensive Income

Answer 31

includes all changes in equity during a period except those resulting from owner’s investments and distributions to owners

Question 32

Under any basis of accounting for income taxes…

Answer 32

…expenses are deductible only when paid or accrued