CPA FAR Flashcards
FASB’s standards-setting proces
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How does financial accounting differ from Management accounting?
Management Accounting information assists management decision making, planning, and control. It is primarily for internal use. It need not follow GAAP but is often derived from Financial Accounting records.
Financial accounting is historical and follows GAAP to provide useful Information to investment and credit decisions.
What is the accounting standard required for general-purpose Financial statements.
General purpose financial statements must be prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the U.S..
What is the formula for caluating Pre-Paids using the Direct Method
Ending Balance + Expense - Ending Balance = Cash payments
The formula for Cost of Goods Sold (COGS)
(Beginning Inventory + Purchase = Goods available for Sale (GAS)) - Ending Inventory = COGS
Allocation Formula for Lump-Sum Purchase Price
Purchase Price * (FV Purchase Item / Total FV) = Allocation for item
Financial reporting should assist users in evaluating the operating results of a state or local governmental entity for a year by providing all of the following except information about
The entity should disclose
(1) legal and contractual restrictions on resources and
(2) risks of potential loss of those resources. This disclosure relates to the objective of helping users to assess:
(1) the services that can be provided and
(2) the entity’s ability to meet obligations as they come due. This objective is separate from the objective of helping users evaluate the entity’s operating results.
Capitalized as leasehold improvements is amortized over the shorter of
expected useful life or the lease term
What are the 4 Non Profit Financial Statements?
- Statement of Activities
- Statement of Financial Position
- Statement of Cash Flows
- Statement of Functional Expenses
Elimination entries
Remove the effects of inter- company transactions.
Which of the following is reported as interest expense
Discount or premium, loan origination fees, etc., are amortized in accordance with the effective-interest method to arrive at a periodic interest expense that reflects a constant rate of interest when applied to the beginning balance.
Which of the following is reported as interest expense?
Discount or premium, loan origination fees, etc., are amortized in accordance with the effective-interest method to arrive at a periodic interest expense that reflects a constant rate of interest when applied to the beginning balance.
3 Types of Inter-Company Transactions
- Debt
- Revenue and Expenses
- Stock Ownership
What are the 4 types of “Trusts” or fiduciary funds?
- Pension Trust Fund
- Investment Trust Fund
- Private-Purpose trust fund
- Agency fund
What type of accounting does the Enterprise fund uses
Accrual Accounting
Should a special revenue fund with a legally adopted budget prepare its financial statements using the accrual basis and integrate budgetary accounts into its accounting system?
Use of the modified accrual basis is required for the fund financial statements of all governmental funds. Thus, a special revenue fund should prepare its financial statements using the modified accrual basis. The integration of budgetary accounts into the formal accounting system is a control used to assist in controlling expenditures and enforcing revenue provisions. The extent to which the budgetary accounts should be integrated varies among governmental fund types and according to the nature of fund transactions. However, integration is necessary in the general, special revenue, and other annually budgeted governmental funds with many revenues, expenditures, and transfers. Thus, a special revenue fund with a legally adopted budget should integrate its budgetary accounts into its accounting system.
On a nongovernmental, not-for-profit entity’s statements of activities, which of the following amounts should not be netted together under any circumstances?
On a nongovernmental, not-for-profit (NFP) entity’s statement of activities, gains and losses may be reported as net amounts if they result from (1) peripheral or incidental transactions or (2) other events and circumstances largely beyond the NFP’s control. Revenues and expenses from major or central events are not netted and are presented in gross amounts. Because the fundraising campaign is carried on annually, it is a major or central event. Thus, revenues and expenditures from the campaign should never be netted in the statement of activities.
A not-for-profit organization is exempt from reporting which of the following contributed services as revenue?
Contributions of services are recognized if they (1) create or enhance nonfinancial assets or (2) (a) require special skills, (b) are provided by those having such skills, and (c) usually would be purchased if not donated. The services received from an attorney who solicits contributions on behalf of the NFP do not create or enhance nonfinancial assets. They also do not involve the attorney’s special legal skills. Consequently, the services of the attorney do not qualify as contribution revenue and are exempt from being reported.
Selected financial data for ABC Company is presented below.
For the year just ended ABC has net income of $5,300,000.
In the prior year, $5,500,000 of 7% convertible bonds were issued at a face amount of $1,000. Each bond is convertible into 50 shares of common stock. No bonds were converted during the current year.
In the prior year, 50,000 shares of 10% cumulative preferred stock, par value $100, were issued. Preferred dividends were not declared in the current year but were current at the end of the prior year.
At the beginning of the current year, 1,060,000 shares of common stock were outstanding.
On June 1 of the current year, 60,000 shares of common stock were issued and sold.
ABC’s average income tax rate is 40%.
ABC Company’s basic earnings per share (BEPS) for the current fiscal year is
The numerator of BEPS is income available to common shareholders (net income – cumulative preferred dividends, whether or not declared). This amount is $4,800,000 [$5,300,000 – (50,000 shares × $100 par × 10%)]. The denominator consists of the weighted-average number of common shares outstanding Dates Shares Portion Weighted Outstanding Outstanding of Year Average Jan 1 – May 31 1,060,000 5 ÷ 12 441,667 Jun 1 – Dec 31 1,120,000 7 ÷ 12 653,333 1,095,000 BEPS is therefore $4.38 ($4,800,000 ÷ 1,095,000).
What is the single source of U.S. GAAP. All other sources of guidance are non-authoritative.
The FASB’s Accounting Standards Codification
According to the FASB’s conceptual framework, asset valuation accounts are
Asset valuation accounts are separate items sometimes found in financial statements that reduce or increase the carrying amount of an asset. The conceptual framework considers asset valuation accounts to be part of the related asset account. They are not considered to be assets or liabilities in their own right.
U.S. Securities and Exchange Commission (SEC) regulations for the financial statement presentation and disclosure requirements of SEC filings can be found in
Regulation S-X applies to the reporting of financial statements, including notes and schedules.
Which of the following is the annual report that is filed with the United States Securities and Exchange Commission?
Form 10-K is the annual report filed with the SEC. It must be reported within (1) 60 days of the last day of the fiscal year by large accelerated filers (with $700 million or more in publicly held stock), (2) 75 days by accelerated filers (with $75 million to $700 million in public stock and annual revenues of $100 million or more), and (3) 90 days by non-accelerated filers.
A report (Form 8-K) must be filed with the SEC after a materially important event occurs.
Current reports must be filed on Form 8-K describing specified material events. Examples are (1) changes in control of the registrant, (2) the acquisition or disposition of a significant amount of assets not in the ordinary course of business, (3) bankruptcy or receivership, (4) resignation of a director, and (5) a change in the registrant’s certifying accountant.
