CPA Excel Flashcards
What is the role of the Financial Accounting Advisory Council (FASAC)?
The FASAC provides guidance on major policy issues, project priorities, and the formation of task forces.
What topics does the Financial Accounting Standards Board (FASB) Accounting Standards Codification not include?
- Other comprehensive basis of accounting
- Cash basis
- Income tax basis
- Regulatory accounting principles
How are assets presented on the balance sheet?
Assets are presented in order of decreasing liquidity. The most liquid assets (such as cash) are shown first, and less liquid assets are shown last (such as property, plant and equipment).
What is the highest structure of the FASB Accounting Standards Codification?
The highest structure is areas.
What is verifiability?
Information is verifiable if different knowledgeable and independent observers can reach similar conclusions.
What does it mean to be free from material error?
Information is free from material error if it accurate and truthful.
What is the concept of capital maintenance?
Capital is said to be maintained when the firm has positive earnings for the year, assuming no changes in price levels.
What does the matching principal state?
Recognize expenses only when expenditures help to produce revenues.
Define “cost effectiveness.”
This constraint on GAAP limits recognition and disclosure if the cost of providing the information exceeds its benefit.
What is conservatism?
Conservatism (also called prudence) is the reporting of less optimistic amounts (lower income, net assets) under conditions of uncertainty or when GAAP provides a choice from among recognition or measurement methods.
For purposes of the fair value definition, what are the assumed characteristics of market participants?
Buyers and sellers that are:
- Independent of the reporting entity
- Acting in their economic best interest
- Knowledgeable of the asset or liability and the transaction involved
- Able and willing, but not compelled, to transact for the asset or liability
What are three valuation techniques (or approaches) that should be used in determining fair value for GAAP purposes?
- Market approach
- Income approach
- Cost approach
List the situations where the entry price may not be the exit price.
- The transaction is between related parties.
- The transaction occurs when the seller is under duress.
- The unit of account included in the transaction price is different from the unit of account that would be used to measure at fair value.
- The market in which the transaction price occurred is different from the market in which the asset would be sold or the liability transferred.
What are the three levels of fair value hierarchy and what does each consist of?
Level 1: Highest level - are adjusted quoted prices in active markets for assets and liabilities identical to those being valued.
Level 2: Are observable for assets or liabilities, either directly or indirectly, other than quoted prices described in level 1.
Level 3: Lowest level - are unobservable and used to determine fair value only if observable inputs are not available.
Distinguish between assets and liabilities measured at fair value on a recurring basis and nonrecurring basis.
Assets and liabilities measured at fair value on a recurring basis are adjusted to fair value period after period. Assets and liabilities measured at fair value on a nonrecurring basis are adjusted to fair value only at the time of a particular event (such as a significant modification of debt).
What significant fair value disclosures are required only in annual statements?
The estimates and significant assumptions used to estimate fair value.
What is the third objective of the International Financial Reporting Standards (IFRS) Foundation?
To take into account the special needs of a range of sizes and types of entities in diverse economic settings
Is IFRS more rules based or principle based?
Principle based
True or False: Income may be realized or unrealized.
True
Does the SEC have legal authority to prescribe accounting standards yo public companies?
Yes, it has that authority.
Define “Financial Reporting Releases (FRR).”
Formal pronouncements that rank the highest in authority for public companies.
Does the SOX act allow auditors to complete non-audit services for clients?
No, SOX does not allow this,
How are current assets listed on the balance sheet?
Declining order or liquidity
What are the steps of the accounting cycle?
- Analyze source documents.
- Post to ledger.
- Making adjusting entries.
- Prepare trial balance.
- Prepare income statements, BS & cash floe statement.
- Close temporary accounts.
What do control accounts report?
The aggregate balance of several subsidiary accounts
What is the order of an income statement presentation?
- Income from Continuing Operations
- Income from Discontinued Operations (net of Tax)
- Extraordinary Items (net of tax)
- Net Income
Define “gains.”
Increases in equity or net assets from peripheral or incidental transactions
Are extraordinary items allowed in IFRS?
No
What is net income plus or minus other components of comprehensive income?
Comprehensive income
In the statement of cash flows, how are accounts listed in the vertical format?
They are listed in separate columns.
What is the indirect method on the statement of cash flows?
Reconciles net income to cash flows from operating activities
When is a statement of cash flows required?
For all business enterprises that report both financial position (BS) and results of operations (Income Statement) for a period.
Where are non-cash investing and financing activities reported?
They are reported on the face of the statement of Cash Flows or as a separate disclosure,
What is the category for principal payments on short-term and long-term loans (from financial institutions or dealers) made to acquire plant assets?
The category is Financing.
Using the indirect method for reporting cash flows from operations, should a decrease in inventory be added to or subtracted from accrual-based net income?
A decrease in inventory should be added.
Using the indirect method for reporting cash flows from operations, should a decrease in unearned revenue be added to or subtracted from accrual-based net income?
A decrease in unearned revenue should be subtracted.
What is a development stage enterprise?
An enterprise placing substantially all its efforts into the establishment of a new business.
What is financial statement ratio analysis?
The development of quantitative relationships between various elements of a firm’s financial statements.
List the debt to equity ratio formula.
Total liabilities / Total Shareholders; Equity
List the common stock yield formula.
Dividend per Common Share / Market Price per Common Share
What are the mandatory exceptions for retrospective application of IFRS?
- Derecognition of financial assets and liabilities
- Hedge accounting
- Assets held for sale and discounted operations
- Certain aspects of accounting for non-controlling interest and use of certain estimates
When does the “first reporting date” happen?
The year-end date for the period for which International Financial Reporting Standards (IFRS) are first applied.
Describe a modified cash basis of accounting.
A modified cash basis of accounting results from adjustments made to cash basis accounting. Specifically, while most items continue to be accounted for using the cash basis, some items are accounted for using the accrual basis. As a consequence, the financial statements reflect accounts and amounts based on a combination of the cash basis and the accrual basis.
Identify some bases of accounting that are not an “other comprehensive basis of accounting.”
- Accounting based on US GAAP.
- Accounting based on the unique provisions of a loan agreement.
- Accounting based on the unique provisions of an acquisition agreement.
Describe special-puspose financial presentations that may be consistent or inconsistent with GAAP.
- Financial statements presented on a prescribed basis resulting in an incomplete presentation, but otherwise consistent with GAAP, or
- Financial statements prepared on a basis of accounting prescribed in an agreement, not in conformity with GAAP or other comprehensive basis of accounting.
Identify the statements included in a set of personal financial statements.
A set of personal financial statements would include:
- A statement of financial condition (balance sheet)
- A statement of changes in net worth
How should a significant interest in a separate business be shown in a personal statement of financial condition?
As a single line item at the estimated current fair value of the net assets, separate from other assets.
In what order should liabilities be shown in a personal statement of financial condition?
In the order of maturity, with no distinction as to current/non-current classifications.
What are the various types of generally accepted accounting principles which may be used by a US entity?
Depending on the entity, the following types of generally accepted accounting principles may be used:
- US GAAP
- US OCBOA
- IFRS
- IFRS for Small and Medium-sized Entities (SMEs)
Identify some of the possible advantages of using IFRS for small and medium-sized (SMEs), instead of US GAAP, by eligible entities.
- More relevant standards
- Less complicated and voluminous standards
- Less costly standards to implement
- Less frequent changes in standards
What other name is used for customer accounts receivable?
Trade receivable
What do we call the (1) maker and (2) holder of a note?
- Maker is the buyer or borrower.
2. The holder is the seller or lender.
Describe a transaction without recourse.
Transferor is not responsible for nonpayment on the part of the maker of the receivable.
What is the accounting treatment when factoring with recourse, as accounted for a loan?
The transferor maintains the receivables on its books and records a loan and interest expense over the term of the agreement.
When does loan impairment occur?
When the creditor believes the loan payments actually to be received have a lower fair value than under the original agreement.
What merchandise is included in ending inventory?
All owned inventory, regardless of location.
List the weighted average cost per unit formula.
Cost of Goods Available for Sale / # of Units Available for Sale
What cost flow assumption is the same for both the periodic and perpetual systems?
First in First Out (FIFO)
What is the main reason for using LIFO in periods of rising cost?
Tax minimization
Why would an entity utilize Dollar Valued (DV) Last in First Out (LIFO)?
Reduces the effect of the LIFO liqidation
How is the cost of ending inventory determined?
Determined by applying one of the four cost flow assumptions.
List the Margin on Cost formula.
(Sales - COGS) / COGS
What are net markdowns?
A net decrease in the original selling price
What is in the cost/retail numerator?
Net purchases at cost
List the basic inventory equation.
Beg Inv + Net Purchases = End Inv + CGS
What is the required accounting for a potential loss on a purchase commitment when the commitment can be modified?
The loss is required to be footnoted as a contingent liability, but is not accrued in the accounts because the loss is not probable given that the contract can be revised.
Under IFRS, is inventory reported at lower of cost or market OR at lower of cost or net realizable value?
Lower of cost or net realizable value.
List the requirements for inclusion in plant assets.
- Currently used in operations
- Have a useful life extending beyond one year
- Have physical substance
List the general rules on costs to capitalize.
- Cash equivalent price
- Get ready costs
How is the cash equivalent price in the issuance of securities determined?
In fair value of asset acquired or of securities issued, whichever can be most clearly determined.
When are unpaid construction input costs included in Average Accumulated Expenditures (AAE)?
Not until cash is paid.
If Average Accumulated Expenditures (AAE) > total interest-bearing debt, what is interest expense for the period?
All interest cost is capitalized and there is no reported interest expense for the period.
How do we calculate depreciation based on service hours?
- Depreciation rate x service hours used
- Depreciation rate = (Cost - Salvage value) / estimated hours
What depreciation method does not use salvage value?
Double declining balance
What costs are included in the full costing method for exploration costs?
All costs of exploring for the resource are capitalized to the natural resources account.
What happens during the reset method?
Accumulated depreciation is reset to zero by closing it to the building account, and then the building is adjusted for the revaluation.
Identify the three possible levels of influence over an investee for accounting purposes.
- Not significant
- Significant influence, but not control
- Control
At what cost are held to maturity securities carried and reported?
At amortized cost
How do we account for the transfer of an investment from held-for-trading to held-to-maturity or available-for-sale?
- Credit trading at recorded fair value
- Debit held -to maturity or available-for-sale at current fair value
- Recognize unrealized holding gain/loss in net income
What are the categories of investments under IFRS No. 9?
- Debt investments measured at amortized cost.
2. All other investments, including debt instruments not at amortized cost and all equity investments.
Identify the three major equity method items recognized each period by an investor.
- Recognize investor’s share of investee’s net income/loss.
- Recognize investor’s share of investee’s dividends declared.
- Recognize adjustment to share of investee’s net income/loss for “depreciation/amortization” of amount allocated to excess of fair value over book value.
List the JE for an investor to recognize proportionate share of investee income using the Equity Method.
Dr: Investment in
Cr: Investment (equity) revenue
In what forms may a joint venture be established?
- By agreement or contract alone
- As a corporation
- As a partnership
- As an undivided interest entity
What are the acceptable methods (models) for measuring and reporting investment property?
The cost method (model) and the fair value method (model). An entity may use only one of these methods to measure and report all of its investment property.
List the types of intangibles.
- Marketing Related
- Customer Related
- Artistic Related
- Contract Related
- Technology Related
- Goodwill
Provide examples of the class of assets you can carry at fair market value under IFRS.
- Property, plant, and equipment
- Identifiable intangible assets
- Financial assets including investments and financial instruments
What do liabilities represent?
They represent outsider claims to a firm’s assets or are enforceable claims for services to be rendered by the firm.
Define “sales taxes payable.”
Account recognized for sales tax collected from customers.
How is the change in the deferred revenue account calculated for a period?
Cash received during the period less revenue earned for the period.
What amount of revenue is recognized for a period for an extended warranty when total warranty costs are estimable?
The total amount received for the extended warranty multiplied by the fraction: warranty costs incurred for the period divided by the total estimated warranty costs to be incurred.
Define “interest-bearing note payable.”
A note in which the interest element is explicitly stated.
How is the total interest expense recognized on a non-interest-bearing note?
Total payments less amount borrowed.
What are bonds sold at a premium?
When stated rate > market rate.
What is the length of a bond term when bonds are issued between interest dates?
Period of time from issuance date to maturity date.
How is interest expenses on the current line of an effective interest bond amortization schedule computed?
Multiply one-half the yield at date of Issuance by the book value of the bond issue on the line above the current line.
What amount is allocated to owners’ equity on issuance of convertible bonds that can be settled in cash?
Issuance price less the present value of the bonds using the prevailing rate on similar bonds.
What is the purpose of detachable stock warrants?
To increase marketability of bond issue.
How does an entity prove intent to refinance short-term obligations?
Must be proven, possibly in the form of board of directors’ meeting minutes.
When is retirement of debt considered extraordinary?
When the “unusual and infrequent” criteria of Accounting Principles Board (APB) Opinion 30 apply.
How is the loss on the early retirement of bonds computed?
Cash paid less book value of bonds retired plus unamortized bond issue costs.