CPA Becker

Question 1

What should a full set of financial statements include?

Answer 1

Statement of financial position (the balance sheet)
Statement of Earnings (the income statement)
Statement of Comprehensive Income
Statement of Cash Flows
Statement of Changes in Owners’ Equity

Question 2

What is meant by a “classified” balance sheet

Answer 2

A classified balance sheet distinguishes current and non-current assets and liabilities

Question 3

Name the expense that each of the following unexpired costs turn into as they expire:

Inventory
Unexpired(prepaid) cost of insurance
Net book value of fixed assets
Unexpired cost of patents

Answer 3

Cost of goods sold
Insurance expense
Depreciation expense
Amortization expense

Question 4

Are gains and losses on the disposal of assets shown on a “gross basis” (I.e., where both the sale proceeds and the net book value of the disposed asset are reported) or on the “net basis” (I.e., where only the difference between sale price and the net book value of the disposed asset is reported)?

Answer 4

Gains and losses are reported at their net amounts (I.e., proceeds less net book value)

Question 5

How does a “multiple step” income statement differ from a “single-step” income statement

Answer 5

-A multiple-step income statement reports operating revenues and expenses separately from non operating revenues and expenses and other gains and losses
-On a single step income statement’s presentation of income from continuing operations, total expenses are subtracted from total revenues without separation between operating and non operating revenues and expenses

Question 6

The gain (loss) from discontinued operations can consist of

Answer 6

An impairment loss, a gain (loss) from actual operations, and a gain (loss) on disposal

Question 7

How do we account for subsequent increases in the fair value of discontinued component?

Answer 7

A gain in recognized from the subsequent increase in fair value minus costs to sell (but not in excess of the previously recognized cumulative loss). The gain is reported in the period of increase.

Question 8

What conditions must be present for a disposal to be reported in discontinued operations

Answer 8

A disposal of a component, group of components, business activity, or nonprofit activity is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results

Question 9

State two types of foreign currency transactions

Answer 9

-Operating transactions, such as importing, exporting, borrowing, lending, and investing transactions
-Forward exchange contracts, which are agreements to exchange two different currencies at a specific future date and at a specific rate

Question 10

Where are foreign currency transaction gains and losses reported in the financial statements

Answer 10

Foreign currency transaction gains or losses are included in determining net income for the period

Question 11

Define comprehensive income

Answer 11

Change in equity(net assets) that results from transactions and other events and circumstances from non owner sources

Question 12

List some disclosure requirements for comprehensive income

Answer 12

-Tax effects of each component included in current
-Changes in the accumulated balances of components of “other comprehensive income”
-Reclassification adjustments between other comprehensive income and net income

Question 13

For operating transactions in foreign currency, detail the recording process

Answer 13

-Record original transaction at exchange or spot rate on date of transaction
-At balance sheet date, compute gain/loss on the transaction by recalculating using the current exchange or spot rate
- On payment date, compute gain/loss on the transaction by using the exchange rate on payment date

Question 14

List the two formats acceptable for reporting comprehensive income

Answer 14

-Statement of comprehensive income (single-statement approach)
-Statement of income followed by separate statement of comprehensive income (two-statement approach)

Question 15

Identify four items included in other comprehensive income-PUFI

Answer 15

Pension adjustments
Unrealized gains and losses on available-for-sale debt securities and hedges
Foreign currency translation adjustments and gains/losses on certain foreign currency transactions
Instrument-specific credit risk for liabilities (using FV) and their changes in FV

Question 16

What is the basic formula used for calculating EPS?

Answer 16

Income available to common shareholders /(over) Weighted average number of common shares outstanding

Question 17

Name the potentially dilutive securities or instruments

Answer 17

-Stock options and warrants and their equivalents
-Convertible securities (bonds or preferred stock)
-Contracts that may be settled in stock or cash
-Contingent issuable shares

Question 18

Compare basic and diluted EPS

Answer 18

Basic: Simple capital structure (only common stock outstanding):
Income available to common shareholders (over)/ weighted average common shares outstanding
Diluted: Complex capital structure

Question 19

What is the antidilution rule

Answer 19

Any conversion, exercise, or contingent issuance that has an antidilutive effect (increases EPS or decreases loss per share) is not included in the calculation unless the shares have actually been converted, exercised, or satisfaction of the contingency met.

Each potential common share is considered separately in sequence from most to least dilutive, with the in-the-money options and warrants generally included first

Question 20

List the reporting requirements for EPS

Answer 20

Face of income statement, with equal prominence for basic and diluted per-share amounts, for both income from continuing operations and net income

Per- share amounts for discontinued operations can be reported on the face of the income statement or in the notes to the financial statements