Conceptual Framework, Standards, Standard Setting, and Presentation of FS #1

Question 1

What should be reported as an INCREASE in the Statement of Changes in Net Assets Available for benefits of an employee benefits plan?

Answer 1

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

Question 2

What should be reported as an DECREASE in the Statement of Changes in Net Assets Available for benefits of an employee benefits plan?

Answer 2

• Benefits paid to participants
• Payments made to insurance entities to purchase contracts that are excluded from plan assets
• Administration Expenses

Question 3

The goal of Convergence is?

Answer 3

• To improve U.S. GAAP and IFRS, AND

- To eliminate the differences in GAAP and IFRS

Question 4

Three facets of Faithful Representation

Answer 4

• Complete
• Neutral
• Free from error

Question 5

Interest is a cash outflow that is classified as what Cash Flow activity?

Answer 5

Operating.

Question 6

Capital Lease payments are what Activity Outflow?

Answer 6

Financing.
- Cash outflows for financing activities include “other principal payments to creditors who have extended long-term credit”.

Question 7

What portion of Capital Lease payments should be reported as cash outflow for financing activities?

Answer 7

Principal portion.

Question 8

Which criteria must the Lessor and Lessee meet one or more of to be considered a Capital Lease (non-cancelable lease term)?

Answer 8

1) The lease transfers ownership of the property to the lessee by the end of the lease term
2) The lease contains a Bargain Purchase option
3) The lease term is equal to 75% or more of the estimated economic life of the lease property
4) The present value at the beginning of the lease term of the Minimum Lease Payments equals or exceeds 90% of the excess of the FMV of the leased property at that time.

Question 9

What additional criteria must the lessor meet BOTH of for a Capital Lease?

Answer 9

• Collectability of the minimum lease payments is reasonably assured
• No important uncertainties surround the amount of un-reimbursed costs yet to be incurred by the lessor under the lease.

Question 10

Elements of Hybrid Method

Answer 10

• Combination of cash and accrual methods
• Use accrual method for accounts involved in computing COGS and GP if inventory is a material income-producing factor
• Cash Method used for all other accounts

Question 11

Should Cash Flows report an amount of cash flows per share?

Answer 11

No.

Question 12

When preparing Consolidated FS, what is the treatment of intra-entity liabilities?

Answer 12

They must be eliminated.

King's liabilities          $450,000
Simmon's liabilities      200,000
Intra-entity liability       (100,000)
                                   ---------
Consolidated total       $550,000

Question 13

What types of rules are generally issued by the SEC?

Answer 13

Financial Reporting Releases that usually agree with U.S. GAAP.

Question 14

Where in the FS should a company disclose information about its concentration risks?

Answer 14

The notes to the FS.

Question 15

Cash income is higher when?

Answer 15

Accounts Receivable decrease; when cash is coming in.

Question 16

Cash income is lower when?

Answer 16

Accrued Expenses decrease; because cash is being paid out.

Question 17

What is the single most authoritative source of GAAP recognized by FASB applied to non-gov entities?

Answer 17

FASB Accounting Standards Codification.

Question 18

Fundamentally interrelated FS is the concept of?

Answer 18

Articulation.

Question 19

What is the purpose of SFAC 4 in the concepts statement?

Answer 19

The purposes and related accounting and reporting objectives set forth in SFAC 4 are concepts—not standards—and are designed to provide a basis for establishing detailed accounting and reporting standards.

Question 20

Operating Activites

Answer 20

All transactions and other events that are not investing or financing; generally include transactions that enter into the determination of net income. These include production and delivery of goods and services, interest and dividends received, and payment of interest.
- Generally related to the current asset and current liability section of the BS.

Question 21

Investing Activities

Answer 21

All transactions related to the making or collecting of loans and the acquiring and disposing of debt, equity instrument, or property, plant, and equipment.
- Generally related to the non-current section of the BS.

Question 22

Financing Activities

Answer 22

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 replaying debt.
- Generally related to the non-current liability and equity sections of the BS.

Question 23

Disclosures of accounting policies should emphasize those that are…?

Answer 23

• A selection from existing acceptable alternatives
• Peculiar to the industry in which the reporting entity operates, or
• Unusual or innovative applications of generally accepted principles.

Question 24

What should be done if there is a decline in value for a marketable equity security and it is considered temporary?

Answer 24

Create a valuation allowance in order to lower the carrying value of the security to fair value.
- Net Income is not effected.

Question 25

If it is determined that an impairment for an equitable security is other than temporary, what should be done?

Answer 25

An impairment loss shall be recognized in earnings equal to the difference between the investment’s cost and it’s fair value at the balance sheet date of the reporting period for which the assessment is made.
- This would lead to a decrease in Net Income.

Question 26

How should gain contingencies be handled?

Answer 26

They should NOT be reflected in the accounts (i.e., accrued), but adequate disclosure should be made in the notes to the FS.

Question 27

How should a loss contingency be handled?

Answer 27

It should be reported by accrual for the most likely award OR the lowest amount of the range of possible awards if not amount can be considered most likely.

Question 28

When should a contingency be recognized/accrued?

Answer 28

When it is “probable” and the amount can be “reasonably estimated”.
- Also disclose in notes to FS.

Question 29

In the SCFs, how would the excess of treasury stock acquisition cost over sales proceeds be handled?

Answer 29

The excess is an equity item that would be debited to contributed capital from treasury stock transactions.

Question 30

Are employer contributions still forfeitable before they’ve become vested?

Answer 30

Yes.

Question 31

How should the amortization of a bond discount be treated in a SCFs using the Indirect Method?

Answer 31

It is classified as an interest expense (thus, operating activities) and has been deducted in arriving at Net Income. Using the Indirect Method, this amortization must be added back to net income to compute net cash provided by operating activities.

Question 32

If a Deferred Tax Asset is not related to an Asset or Liability how should it be included in current liabilities for the BS?

Answer 32

Yes.