CPA FAR 2_TLR Flashcards

Question

How is inventory measured using LIFO or the retail inventory?

Answer 1

Inventory measured using LIFO or the retail inventory method must be valued at lower of cost or market when the utility of the inventory is no longer as great as cost. Market is replacement cost unless: Market Cost is more than celing or less than FLOOR.

Answer 2

A debit balance of $70,000 Changes in the plan assets and/or projected benefit obligation (PBO) fall into three categories: (1) changes due to unrecognized gains and losses, (2) changes due to prior service cost, and (3) changes associated with a transition asset or obligation. In all three categories, the initial event or occurrence is reflected as a change in the plan asset/PBO with an offsetting change in other comprehensive income; that is, it is not initially included in the determination of pension expense. The amount to be reported in accumulated other comprehensive income is the net gain of $140,000 and the prior service cost of $210,000, for a net debit balance of $70,000.

Answer 3

The effect of a change in the opening balance of a valuation allowance that results from a change of circumstances ordinarily is included in income from operations. GAAP provides that only deferred tax assets (not deferred tax liabilities) be reduced by a valuation allowance, but only if it is more likely than not (i.e., a likelihood of more than 50%) that some or all of the deferred tax assets will not be realized. The valuation allowance should reduce the deferred tax asset to the amount that is more likely than not to be realized, considering both positive and negative evidence. The effect of a change in the opening balance of a valuation allowance that results from a change of circumstances ordinarily is included in income from operations. All deferred tax liabilities and deferred tax assets are classified on the balance sheet as noncurrent.

Answer 4

Answer = $5,000 Non-level lease payments must be expensed on a straight-line basis. ``` Year 1 $25,000 Year 2 30,000 Year 3 35,000 ------- Total rent payments $90,000 Lease term 3 years Yearly rent $30,000 ``` The entry for the first payment would be: Rent expense $30,000 Cash $25,000 Lease liability 5,000

Answer 5

The original historical cost can be inferred from the balances of the two accounts above. Taking the current market value and adding back the unrealized losses results in the original cost of the securities: $96,450 + $19,800 = $116,250

Answer 6

Answer: The total future cash payments This question relates to the debtor's gain on troubled debt restructuring. FASB ASC 310-40-40-1 has changed the treatment of creditor's losses on a restructuring to include the use of present values. Debtor's gains, however, continue to follow FASB ASC 470-60-35-6. Debtor's gains are calculated based on undiscounted amounts. The total future cash payments, including interest, are used to compute the gain on troubled debt restructuring.

Answer 7

Answer = the notes contain disclosures related only to required supplementary information. In the notes to the financial statements, both businesses and governments should include a note that summarizes the accounting policies related to the specific statements presented. The notes are considered an integral part of the statements. Although unnecessary and immaterial items should not be included, the extensive list of items a government should address in the notes of its financial statements covers material additional to “required supplementary information.” Therefore, only “the notes contain disclosures related only to required supplementary information” is not true; GASB 2200.104 states that both notes and required supplementary information are required.

Answer 8

A company using the equity method to account for an investment does not recognize dividends received as revenue. When a cash dividend is received, the receipt of cash is treated as a liquidation of the investment and the carrying amount of the investment is reduced by the amount of the dividend. However, when additional stock shares are received in lieu of cash, no liquidation of the investment has occurred. Instead, the investment carrying value now applies to a larger number of shares held by the investor. Therefore, the investor needs only to note that the value per share of its investment has decreased and the number of shares has increased.

Answer 9

Sales price of bonds = 1.01 x 200 x $1,000 = $202,000 Accrued interest = (5/12) (.09 x 200 x $1,000) = 7,500 Total received from bond issuance $209,500 Note: Bonds were issued at 101% plus accrued interest. Therefore, the answer must be higher than $202,000. • 101% × (200 bonds × $1,000 per bond) = $202,000 Cash $209,500 Premium $2,000 Bond Payable $200,000 Interest Payable $7,500

Answer 10

In the period received at fair value Unconditional contributions, whether promised or received as cash, are recognized as revenue in the period received. Contributions revenue should be measured at fair value, not donor's book value. Donor intentions to give, rather than unconditional promises, are not considered revenue.

Answer 11

The financial statements required for proprietary funds such as enterprise funds, including MD&A and RSI Special-purpose governments engaged only in business-type activities are required to report by presenting the financial statements required for proprietary funds (enterprise funds and internal service funds) including notes, MD&A, and RSI.

Answer 12

A gain of $30,000 ``` Under IFRS (International Financial Reporting Standards), a foreign currency transaction should be recorded initially at the rate of exchange at the date of the transaction. At each subsequent balance sheet date, and at settlement, the transaction should be adjusted for the current amount, with differences being reported in profit or loss in the period incurred. At 11/1, the liability was $300,000 (€200,000 × 1.5), and on 12/31, the liability had decreased to $270,000 (€200,000 × 1.35), for a gain of $30,000. ```

Answer 13

Answer = the notes contain disclosures related only to required supplementary information. In the notes to the financial statements, both businesses and governments should include a note that summarizes the accounting policies related to the specific statements presented. The notes are considered an integral part of the statements. Although unnecessary and immaterial items should not be included, the extensive list of items a government should address in the notes of its financial statements covers material additional to “required supplementary information.” Therefore, only “the notes contain disclosures related only to required supplementary information” is not true; GASB 2200.104 states that both notes and required supplementary information are required.

Answer 14

governmental activities. The governmental activity which is the predominant user of the internal service funds absorbs and reports the assets and liabilities of an internal service fund that are not eliminated. In most situations, this will be the governmental activities. (GASB 2200.147–.150)

Answer 15

$468,500. Determine the discount amount (the amount of interest on the note). The face amount of the note less the discount is the initial proceeds, the initial carrying value of the note. The discount is interest, accrued equally (straight-line) over 12 months, and added to the carrying value of the note for the five months to the end of the year. Discount on note = 10.8% x $500,000 = $54,000 Monthly amortization = $54,000 / 12 months = $ 4,500/month Face amount of note $500,000 Less discount at issuance 54,000 -------- Carrying value of note at issuance $446,000 Add discount amortization Aug. 1 - Dec. 31 (5 months x $4,500) 22,500 -------- Carrying value of note on December 31, 20X1 $468,500

Answer 16

II only The basic government-wide financial statements include the statement of net position and the statement of activities, but not a cash flow statement. The fund financial statements include statements of cash flows for proprietary funds but not for governmental funds. The proprietary funds, except for the internal service funds, make up the business-type operations of a government. A city-owned utility is a prototypical example of a business-type activity that would be recorded in a proprietary fund. In contrast, construction of a city hall building is a general government operation that would be recorded in a governmental fund

Answer 17

price that would be received when selling an asset or paid when transferring a liability in an orderly transaction between market participants. The correct answer is the definition of fair value as it appears in the glossary of the FASB Accounting Standards Codification: "Fair Value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." (FASB ASC 820-10-20)

Answer 18

may be included in the basic financial statements or in the required supplementary information (RSI). Governments with significant budgetary perspective differences that preclude providing budgetary comparisons for the general fund and each major specific revenue fund are required to present budgetary comparison schedules as required supplementary information (RSI). Other governments are encouraged to provide the budgetary comparison statement as RSI but may include it as part of the basic financial statements. Budgetary comparison statements are not listed among the items to be included in management's discussion and analysis (MD&A).

Answer 19

both flow of financial resources and financial position. The measurement focus of governmental type funds is on both: the changes in financial position and financial position. The flow of financial resources refers to the changes in financial position from the sources and uses of financial resources (GASB 1300.102). By contrast, the measurement focus of a proprietary fund is on determining “operating income, changes in net position (or cost recovery), financial position, and cash flows”—similar to a commercial entity.

Answer 20

$1,680,000 CAPITAL: Common stock $ 600,000 Additional paid-in capital 800,000 Total contributed capital $1,400,00 Retained earnings ($150,000 appropriated) 350,000 Subtotal $1,750,000 Less accumulated comprehensive income (unrealized loss on available-for-sale marketable equity securities) $20,000 Less Treasury stock at cost 50,000 70,000 Total stockholders' equity $1,680,000 ========== Note: Only the unrealized loss from the marketable securities classified as available-for-sale is included in shareholder's equity as a component of accumulated comprehensive income. The net unrealized loss on marketable trading securities is included in income.

Answer 21

The FASB requires that non-goodwill intangible assets with finite lives be amortized, whereas similar assets with indefinite lives are not amortized. Both classifications of non-goodwill intangibles are required to be reviewed for impairment. Intangible assets with finite lives are tested for recoverability whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Intangible assets that have indefinite lives are not amortized and therefore are not tested for recoverability. However, they are reviewed for impairment at least annually. Patents fall into the first group, and are tested for recoverability. Goodwill and the trademark have infinite lives and fall into the second group; they are reviewed at least annually for impairment. Research and development (R&D) costs are expensed, not capitalized.

Answer 22

Answer = The tax position must be based on its technical merits and not on whether or not the taxing authority is likely to examine that tax position. FASB ASC 740-10-25-7 requires the presumption that the taxing authority has full knowledge of all relevant information even if not published. Each tax position must be evaluated without consideration of the possibility of offset or aggregation:

Answer 23

and the present value of all future interest payments, at the market (effective) interest rate. FASB ASC 835-30-25-10 requires all long-term receivables and payables to be recorded at present value. Additionally, the present value of all the cash flows (principal and interest) at the beginning of any bond arrangement represents the amount of cash the issuer will receive from the purchaser (i.e., the market price of the bond). The market rate is the true rate of interest in the arrangement and is used to determine the present value of all the cash flows.

Answer 24

Answer = The statement of financial position Other comprehensive is transferred to accumulated other comprehensive income each period. Accumulated other comprehensive income is reported as part of equity on the balance sheet/statement of financial position.

Answer 25

Answer = As reporting for an integral part of an annual period The Financial Accounting Standards Board in FASB ASC 270-10-45-1 noted that “each interim period should be viewed primarily as an integral part of an annual period.”

Answer 26

lower by $16,000. In increase in accounts receivable means that sales revenue has been included in net income but not yet received. A decrease in accounts payable means that cash has been paid for expenses but these cash payments have been deducted in arriving at net income. Net income $116,000 Increase in accounts receivable (10,000) Decrease in accounts payable (6,000) --------- Cash-basis/taxable income $100,000

Answer 27

Answer= Estimate only the best estimate to settle and discount amounts of estimated loss to present value When a range of amounts that may be lost in a lawsuit are established, the best number in the range must be chosen to accrue. The chosen amount must always be discounted to present value.

Answer 28

Answer = None of these items would be part of the acquisition cost. FASB ASC 805-10-25-21 requires that acquisition-related costs be charged to expense. All of these costs are acquisition-related costs and should be expensed in the period incurred. FASB ASC 805-10-25-23 states the following: "Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder's fees; advisory, legal, accounting, valuation, and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognized in accordance with other applicable GAAP."

Answer 29

Both sales to unaffiliated customers and intersegment sales. After an enterprise has identified its operating segments (including those that represent an aggregation of two or more separate segments), it must report separately information about each operating segment that meets any one or more of the following tests. Those segments that meet at least one of the tests represent reportable segments for which specified information must be reported. * Revenue test: If its revenue is 10% or more of the combined revenue of all operating segments (for purposes of this test, revenue includes both sales to external customers and intersegmental sales or transfers) * Profitability test: If the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of: o the combined reported profit of all operating segments that did not report a loss or o the combined reported loss of all operating segments that did report a loss • Asset test: If its assets are 10% or more of the combined assets of all operating segments

Answer 30

The GASB has established “accountability” as the cornerstone of financial reporting for governmental entities. Under GASB Concepts Statement 1, accountability consists of the following sub-objectives: * Interperiod equity: Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services. * Budgetary and fiscal compliance: Financial reporting should demonstrate whether resources were obtained and used in accordance with the entity's legally adopted budget; it should also demonstrate compliance with other finance-related legal or contractual requirements. * Service efforts costs and accomplishments: Financial reporting should provide information to assist users in assessing the service efforts, costs, and accomplishments of the governmental entity.

Answer 31

Consolidated current assets before eliminations $320,000 Less intercompany profit on remaining inventory purchased from Kent (Note 1) 12,000 -------- Adjusted consolidated current assets $308,000 ======== Note 1: Computation of intercompany profit: Gross profit rate = $48,000 / $240,000 = 20% Gross profit in inventory = 20% x $60,000 = $12,000 Note also that since Clark owns less than 20% of Dean, Inc., and does not exert significant influence, the gross profit from the sale to Dean does not require elimination.

Answer 32

70% FASB ASC 985-20-35-1 provides: "The annual amortization shall be the greater of the amount computed using (a) The ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product, or (b) The straight-line method over the remaining estimated economic life of the product including the period being reported on." Ratio of current to total revenues (given) = 30% Straight-line rate = 1/5 = 20% The greater of these, 30%, would be used in computing 20X2 amortization, leaving a net amount of 70% (100% − 30%) to be shown on Bit's December 31, 20X2, balance sheet.

Answer 33

Flows and balances of financial resources According to the summary of GASB Concept Statement 1, the primary characteristics of governmental structure are as follows: "(1) The representative form of government and the separation of powers "(2) The federal system of government and the prevalence of intergovernmental revenues "(3) The relationship of taxpayers to services received "These are the primary characteristics that affect financial reporting of governmental-type activities and must be considered in establishing financial reporting objectives."

Answer 34

$1,000,000 Donor wishes require that the $1,000,000 contribution be held permanently, thus increasing permanently restricted net assets in the period of the contribution. The endowment income is restricted by the donor only until it is used according to the donor's wishes, so it would be reported as an increase in temporarily restricted net assets. If the donor's wishes are fulfilled within the accounting period, the endowment income could be accounted for as an increase in unrestricted net assets.

Answer 35

increased by the face amount of the note. A note sold with recourse is a promise to pay the financial institution if the maker dishonors the note. When receivables are sold with recourse, the entity has a contingent liability. A contingent liability is an obligation that has to be paid in the future. Therefore, the notes receivable discounted account must be increased by the face amount of the note

Answer 36

$0 This arrangement is not substantially different from a consignment. Devlin does not meet the requirements for a sale until Jensen has sold the goods.

Answer 37

$0 Change in Accounting Principal PPA - Restrospective SHOW as RETAINED EARNINGS ADJUSTMENT - NOT INCOME STATEMENT FASB ASC 250-10-45-5 mandates that voluntary changes in accounting principle be recognized using the retrospective approach, in which the cumulative effect is reported as an adjustment of the beginning-of-year retained earnings of the earliest year presented. The only exception is when the FASB issues a new pronouncement and mandates in that pronouncement that a change in accounting principle made to comply with that pronouncement should be made by including the cumulative effect in net income of the year of change.

Answer 38

Estimate only the best estimate to settle and discount amounts of estimated loss to present value When a range of amounts that may be lost in a lawsuit are established, the best number in the range must be chosen to accrue. The chosen amount must always be discounted to present value.

Answer 39

$428,000 Conn should report $428,000: Beginning retained earnings as originally reported $400,000 Over expense of $40,000 – Tax of 30% ($12,000) 28,000 -------- Corrected beginning retained earnings $428,000

Answer 40

Revenue of $5 million that should have been deferred was recorded in the previous year as earned. Prior period adjustments to retained earnings are only reported for errors in prior-year financial statements that resulted in an incorrect balance in retained earnings at the beginning of the year. These adjustments are not required for errors that affect the current year because these errors do not affect prior-year balances, and current-year income should be corrected if current-year errors are detected before the financial statements are published. Prior-year errors in reporting other comprehensive income do not affect the beginning balance of retained earnings. Rather, they result in erroneous balances in accumulated other comprehensive income.

Answer 41

Net income before taxes of $200,000 minus the municipal bond interest of $20,000, plus the insurance premiums $10,000 equals taxable income of $190,000: • $200,000 - $20,000 + $10,000 = $190,000 Taxable income times the tax rate equals tax due of $57,000: • $190,000 × 0.30 = $57,000 The effective tax rate would be the total tax due divided by the total income earned: • $57,000 ÷ $200,000 = 0.285 (28.5%)

Answer 42

Expenses that are recognized in financial income this year and deductible next year Deferred tax assets (DFA) are created when taxes are paid or carried forward but not yet recognized in the income statement. For example, DTAs are created when expenses (not revenues) are recognized in book income (i.e., financial income) before they are recognized in tax income, such as a loss carryover from the prior year. DTAs also arise when an entity incurs an accounting expense such as bad-debt write-offs but does not recognize the expense for tax periods until a future period.

Answer 43

Prior-year 12/31 retained earnings, no; Prior-year 12/31 interest payable, yes The cost of the merchandise purchased (and sold by the end of the year) should have been based on the present value of the note used to pay for them, not the face amount. Since the note paid a higher rate of interest than what was required as a yield, the note would have a premium, a higher value than face. Thus, the note's present value was higher than its face amount, and the higher value should have been added to purchase cost and moved to cost of goods sold. The lower value that was used for purchase cost understated the cost of goods sold. If cost of goods sold was understated, then net income was wrong and retained earnings was not correct. Interest payable, however, is based on the face amount of the note and the stated payment rate, so it is correct.

Answer 44

Four conditions are necessary for accrual of employees' compensation for future absences according to provisions in FASB ASC 710-10-25-1. The four conditions are: 1. rights to compensation vest or accumulate, 2. payment of compensation is probable, 3. amount of payment can be reasonably estimated, and 4. the compensation is attributable to employees' services already rendered.

Answer 45

When the transaction lacks commercial substance A nonmonetary exchange is generally measured based on the fair market value of the assets exchanged. If the exchange lacks commercial substance, the asset is measured at its book value before the exchange.

Answer 46

YES! GASB I55.115 states: “The assets and liabilities arising from reverse repurchase and fixed coupon reverse repurchase agreements should not be netted on the balance sheet. These agreements should be reported as a fund liability captioned ‘Obligations under reverse repurchase agreements,’ and the underlying securities should be reported as ‘investments.’” GASB I55.116 further indicates that interest cost should not be netted with interest earned on related investments. GASB I55.111 states that credit risk needs to be disclosed.

Answer 47

Government-wide statement of net position The noncurrent portion of general government capital leases are reported as a general long-term liability. General long-term liabilities should be reported in the governmental activities column of the government-wide statement of net position. They should not be reported as liabilities in governmental funds.

Answer 48

In the government-wide statement of net position in the governmental activities column The noncurrent portion of capital leases financed by the general government is reported as general long-term liability. General long-term liabilities should be reported in the governmental activities column in the government-wide statement of net position.

Answer 49

$0 The cumulative effect of a change in an accounting method is reflected in retained earnings, not net income.

Answer 50

Sales and cost of goods sold should be reduced by the intercompany sales. FASB ASC 810-10-45-1 states: “In the preparation of consolidated financial statements, intra-entity balances and transactions should be eliminated. This includes…sales and purchases....Any intra-entity profit…shall be eliminated.” The income statement adjustment process is greatly simplified because the goods sold to Senior were all subsequently sold to “outside” customers. This means that inventory will not require adjustment. The only adjustment needed is reduction of sales and cost of goods by the total dollar amount of the intercompany sales. Failure to do this would overstate those two items on the consolidated income statement.

Answer 51

The service efforts and accomplishments (SEA) performance of governmental entities is primarily measured by output, outcome, and efficiency measures. These measures report what services the entity has provided, whether those services have achieved the objectives established, and what effects they have had upon the recipients and others. SEA performance information measures should meet the characteristics of relevance, understandability, comparability, timeliness, consistency, and reliability. All of these measures, except for understandability and relevance, can be objectively examined. Understandability and relevance will be subject to the user's own interpretation. As understandability is not listed in the answer choices, only relevance can be the proper answer.

Answer 52

is always considered part of required supplementary information. State and local governments are required to prepare a statistical section that accompanies the basic financial statements. GASB 2800.101 clearly indicates that the statistical section is supplementary information. Financial trends is one of the five categories of statistical information to be presented. Statistical information is not considered part of management's discussion and analysis, another item of required supplementary information, or part of the notes to the financial statements.

Answer 53

The statistical section is not part of the basic financial statements. The statistical section of a CAFR is outside the financial section of the report and is considered to be supplementary information. The statistical tables present comparative data for several periods of time and may contain nonaccounting data.

Answer 54

This lease is treated as a capital lease since ownership remains with the seller-lessee at the end of the lease. Answer choice D is correct ("The shipping company will recognize in the current year a loss on the sale of the boat."). Normally, the gain or loss on the sale of the asset would be deferred and amortized; however, there are several exceptions to the rule. When the fair value of the property, at the time of the transaction, is less than its undepreciated cost, the seller-lessee must immediately recognize the loss. Answer choice A ("The boat will not be classified in property, plant, and equipment of the shipping company.") and answer choice C ("The shipping company will not recognize depreciation expense for the boat in the current year.") are false; Choice B ("The shipping company will recognize the total profit on the sale of the boat in the current year.") is false since there is a loss, not a gain, on the sale of the boat.

Answer 55

Sale-leaseback. FASB ASC 840-40-15-6 requires that “if a change in the provisions of a capital lease gives rise to a new agreement classified as an operating lease, the transaction shall be accounted for under the sale-leaseback requirements.”

Answer 56

An overall description of the plan FASB ASC 715-20-50-1 requires that the following items be disclosed: A description of the plan's key elements, such as investment policies Components of pension expense Reconciliation of projected benefit obligation and fair value of plan assets Funded status Rates used in measuring benefit amounts (discount, return on plan assets, compensation) Best estimates of next year's contributions to the plan

Answer 57

purchase common stock at the average market price. Exercise of options and warrants is assumed at the beginning of the period. Proceeds are assumed used to purchase common stock at the average market price during the period. The incremental shares are included in the denominator of diluted EPS.

Answer 58

$60,000 When an asset may have sustained a loss in value, due to circumstances occurring by the end of the year, it must be tested for impairment. Under IFRS, the test for and measure of an impairment loss is the excess of carrying value ($500,000) above recoverable amount ($440,000). The recoverable amount is the higher of the value in use (present value of discounted future cash flows) or net realizable value (sales proceeds less cost to sell). The recoverable amount here is the value in use of $440,000, which is larger than the net realizable value of $450,000 - $16,000, or $434,000. Thus, a $60,000 impairment loss is recognized.

Answer 59

Information about the extent of reliance on major customers is required where 10% or more of the enterprise's revenue is derived from a single customer. Required information is: the fact that one (or more) individual customer(s) account for 10% or more of the enterprise's revenue. the total amount of revenue from each such customer. identification of the segment(s) reporting the revenue. In meeting these requirements, the identity of the customer is not necessary. A group of entities under common control are considered a single customer, as are each of the following: the federal government, a state government, a local government, and a foreign government.

Answer 60

Over the LEASE TERM if 75 or 90 criteria are met a> lease encompasses at least 75% of the useful life of the asset b> The present value of the minimum lease payments required under the lease is at least 90% of the fair value of the asset at the inception of the lease. Over the ECONOMIC LIFE if Transfer of Ownership (TO) or Bargain Purchase Option (BOP)

Answer 61

If the bond is issued at PAR, record at Face Value - Stated / Face Rate = Market / Effective Rate If issued BELOW par, record with discount Stated rate < effective rate Bond rate is worse than market rate = discount If issued above part, record with premium Stated Rate > effective rate Bond rate is better than market rate = premium

Answer 62

1) Unrealized holding gains/ losses on AFS investments 2) Foreign currency translations gains/losses 3) Pension plans gains /losses 4) Pension Prior Service Cost/ Credits

Answer 63

Three - pension trust (fiduciary fund), enterprise and internal service fund also use accrual accounting. The economic resources measurement focus and the accrual basis of accounting are used for proprietary funds and fiduciary funds. The current financial resources measurement focus and the modified accrual basis of accounting are used for governmental funds.

Answer 64

The government-wide financial statement reports governmental activities, business-type activities, the primary government totals, and discretely presented component data. All the data in the governmental wide statement are presented on the accrual basis even for governmental activities.

Answer 65

FASB requires that the initial liability be increased to the expected cash flow adjusted for market risk and inflation

Answer 66

A liability/legal obligation associated with the retirement of a tangible long-lived asset An asset is set up for the initial liability and is capitalized over the useful life ARO's incur depreciation and accretion expense yearly Accretion expense multiple balance of recorded liability by company's credit-adjusted discount rate

Answer 67

Permanently restricted Net assets - donor-imposed restrictions Temporarily Restricted - limited by donor-imposed restrictions on the timing of use of purpose of use Unrestricted not permanently or temporarily restricted

Answer 68

Beginning AR + Sales - Collections = Ending AR Net AR would be less cash discounted, sales returns, and uncollectible accounts

Answer 69

shown separately and not included under a general heading such as notes receivable or accounts receivable.

Answer 70

As a component of income from continuing operations. It should be considered a change in estimate which is handled prospectively. That is previously reported information in previous financial statements is not adjusted, nor is a cumulative effect of the change reported.

Answer 71

An accounting change is a change in 1) an accounting principle, 2) an accounting estimate 3) the reporting unity The correction of an error in previously issued financial statements is not an accounting change.

Answer 72

FASB 250-10-45-5 mandates that voluntary changes in accounting principle be recognized using the retrospective approach, in which the cumulative effect is reported as an adjustment of the beginning of the year RE of the earliest year presented

Answer 73

1) Complete Main Eliminiation Entry - Date of Acquisition a) Sub's Asset to FV b) Eliminiate Stockholder's Equity, Paid in capital, RE Account of the Sub are eliminated c) Record Goodwill d) Record NCI e) Eliminate the Investment Account 2) Eliminiate Intercompany Sales or purchases 3) Eliminate Intercompany Sales fixed assets 4) Eliminate Intercompany Bonds

Answer 74

accrual accounting and their focus is the economic resources measurement focus. Government Funds focus on current financial resources and use the modified accrual basis.

Answer 75

When translating the capital accounts of a subsidiary, the historical exchange rate is used for the capital stock account and additional paid-in capital. This date cannot be earlier than the date the parent acquired the investment in the subsidiary.

Answer 76

Both I and II GASB N50.115 states that governments should recognize property tax revenues in the period for which the taxes are levied even if a legal claim or actual payment occurs in a previous period. Property taxes are often levied in the fiscal year prior to the year in which they legally can be expended. To gain accounting control over the receivable, it should be recorded at the time of levy. However, the offsetting credit should be to a deferred revenue account since the revenue, although measurable, is not “available” until the following fiscal year. If previously levied, taxes collected in advance should be recorded with a debit to cash and a credit to taxes receivable. If not previously levied, the taxes collected should be recorded with a debit to cash and a credit to deferred revenues.

Answer 77

The statement of activities. The primary nongovernment VHWO/ONPO (voluntary health and welfare organization/other not-for-profit organization) operating statement is the statement of activities (basically an income statement). The statement is presented in three major sections; each section presents the changes in one of the net asset classes. Revenues, gains, and losses are classified according to the net asset class affected. The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of an entity during a period of time. The statement of financial position is essentially a balance sheet, with assets and liabilities. The statement of functional expenses provides additional information to users regarding expenses, which are broken down into either program service expenses or supporting service expenses.

Answer 78

The correct answer is the definition of fair value as it appears in the glossary of the FASB Accounting Standards Codification: "Fair Value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." (FASB ASC 820-10-20)

Answer 79

Other comprehensive is transferred to accumulated other comprehensive income each period. Accumulated other comprehensive income is reported as part of equity on the balance sheet/statement of financial position.

Answer 80

$10,000. If one purchases a trademark, one carries that intangible at purchase cost. If the trademark has a finite life, one amortizes the purchase cost over the useful life. The annual amortization cost of the trademark is thus the $500,000 cost divided equally by the 50 years, or $10,000 each year. After the first year, the accumulated amortization will only be 1 × $10,000, or $10,000.

Answer 81

Impairment of goodwill is a two-step process: Step 1, Compare: (a) year-end fair value of reporting unit $400,000 (b) carrying amount, including goodwill $470,000 If (b) exceeds (a), go to step 2. If (a) exceeds (b), no impairment. Step 2, Compare: (a) implied fair value of reporting unit goodwill ($400,000 - $330,000) $ 70,000 (b) carrying amount of goodwill $100,000 Since (b) exceeds (a) by $30,000, an impairment loss of $30,000 is recognized. If (a) exceeds (b), no impairment. Note: The impairment loss cannot exceed the recorded goodwill.

Answer 82

$450,000. When software costs are capitalized, yearly amortization of these costs is based on the greater of the ratio of current sales to expected total sales or the straight-line method over the useful life of the asset (four years). Sales ratio: 10% (0.10) × $600,000 = $60,000 Straight-line: 25% (0.25) × $600,000 = $150,000 Since straight-line amortization is larger and is used, the remaining capitalized cost is $600,000 less $150,000, or $450,000. Since the net realizable value, $480,000, is greater than the $450,000, there is no need for an additional write-off. FASB ASC 350-40-35-4 states: "Amortization: The costs of computer software developed or obtained for internal use shall be amortized on a straight-line basis unless another systematic and rational basis is more representative of the software's use." FASB ASC 985-20-35-4 states: "Net Realizable Value of Capitalized Software Costs: At each balance sheet date, the unamortized capitalized costs of a computer software product shall be compared to the net realizable value of that product. The amount by which the unamortized capitalized costs of a computer software product exceed the net realizable value of that asset shall be written off."

Answer 83

New Partners FV Assets is > interest received the OLD partners capital accounts are increased New Partners FV Asset < interest received the old partners capital accounts are decreased

Answer 84

If new partners FV contribution > interest received Excess GW = old partners If new partners FV Contribution < Interest Excess GW = New Parnter

Answer 85

Interest Exp = Carrying Amt x Effective Rate Interest YIELD Cash Payment = Face Amount X Stated Rate of interest COUPON - also known as interest payable

Answer 86

Composite depreciation: yes; Group depreciation: yes When applying either group or composite depreciation, when an asset is sold, the cost of the asset is credited, cash proceeds are debited, and accumulated depreciation is also debited as a plug figure to balance the entry.

Answer 87

The correct answer is: Fund balance unassigned 132,000 Fund balance--committed 132,000 The following answer choices are not correct because encumbrances would be removed from the books at year-end. The second answer choice above is also not correct because it shows the original encumbrance value for all 12 vehicles although 6 have already been delivered. It appears the general fund started with a fund balance of $132,000 if it held only enough cash to pay for the six vehicles delivered in October, November, and December. The fund balance would have been debited $264,000 when expenditures were closed and outstanding encumbrances removed at year-end, leaving a debit balance of $132,000. The remaining encumbered amount would be disclosed as the fund balance category called “Fund balance—committed.” (The city simply reversed encumbrances at year-end, and then displayed the ending fund balance in two amounts—committed and unassigned.) Further, the amount of fund balance set aside due to the outstanding encumbrances could be labeled “Fund balance—assigned” as well as “Fund balance—committed” depending on whether the original agreement to purchase the vehicles had been approved at the highest level of the government. The remaining fund balance, a deficit amount, in this case, would be labeled “unassigned.”

Answer 88

Accumulated benefit obligation FASB ASC 715-30-20 states, “The accumulated benefit obligation differs from the projected benefit obligation in that it includes no assumption about future compensation levels.” Accumulated benefit obligation is based upon prior compensation. Project benefit obligation is based on future compensation.

Answer 89

Required supplementary information GASB Statement 34 requires governments that use the modified approach for reporting eligible infrastructure assets to present the following in the required supplementary information (RSI) section: the assessed condition for the three most recent condition assessments (with the assessment dates), and the estimated annual amount at the beginning of the fiscal year to maintain and preserve the target condition level established versus amounts actually expensed for each of the past five reporting periods.

Answer 90

``` S I R P A T Service Cost + Interest on PBO + Return on Plan Assets (-) Prior Service Cost Amortization + Actuarial Gain (-) and Losses (+) Transition Asset (-) or Obligation (+) ```

Answer 91

Company must recognize the full overfunded or unfunded status of the defined benefit plan on the balance sheet Overfunded or underfunded status is measured as the difference between the FV of the plan assets and the PBO JV Other comprehensive Income XX Underfunded Pension Liability XX

Answer 92

``` Beginning Balance of PBO Plus Interest on the PBO Plus Current Service Cost Less Benefits PAID ENDING PBO ```

Answer 93

``` Ending Balance of Assets at FV Less Beginning Balance of Assets at FV Plus Benefits Paid Less Contributions ACTUAL RETURN ON PLAN ASSETS ```

Answer 94

The unfunded projected benefit obligation The FASB requires an entity to recognize on its balance sheet the full underfunded status of its defined benefit pension plans. This is the difference between the fair value of the plan assets and the projected benefit obligation, including all actuarial gains and losses, prior service cost, and any remaining transition amounts. If the benefit obligation is greater than the fair value of plan assets, the plan is underfunded, and a net liability (i.e., unfunded projected benefit obligation) is reported.

Answer 95

The intrinsic method is the excess of the market price over the exercise price. Market price (100 x $10) $1,000 Exercise price (100 x $9) 900 ------ Intrinsic value $ 100

Answer 96

An overall description of the plan FASB ASC 715-20-50-1 requires that the following items be disclosed: A description of the plan's key elements, such as investment policies Components of pension expense Reconciliation of projected benefit obligation and fair value of plan assets Funded status Rates used in measuring benefit amounts (discount, return on plan assets, compensation) Best estimates of next year's contributions to the plan

Answer 97

$400,000. In-process research and development results are classified as intangible assets with indefinite lives until the research and development phase is complete or the project is abandoned. These assets are originally recorded at fair value (i.e., $400,000) and will be subject to impairment tests.

Answer 98

In general, accounting for nonmonetary exchanges is based on fair value. The asset received should be recorded at the fair value of the asset surrendered OR the fair value of the asset received, whichever is more clearly evident. Since Balm’s stock is not yet trading, the fair value of the services provided (48 hours × $125/hour = $6,000) is more readily determinable. The common stock account will increase by its par value of $5,000; the remaining $1,000 will be an increase to Additional Paid-in Capital.

Answer 99

how the governmental entity met its cash requirements. To achieve the objective of providing information to assist users in assessing the level of services that can be provided by the entity and its ability to meet its obligations as they become due, financial reporting should provide information about: the financial position and condition of the governmental entity, the governmental entity's physical and other nonfinancial resources, and legal or contractual restrictions of resources and risks of potential loss of resources. Information about how the governmental entity met its cash requirements is related to the objective of providing information to assist users in evaluating the operating results of the governmental entity. (GASB Concepts Statement 1)

Answer 100

Property tax revenue for an amount deferred because it was not available. The link between government-wide and governmental fund statements requires a reconciliation to convert the governmental funds (which use the modified accrual basis of accounting) to the economic resources measurement and accrual basis of accounting used by the government-wide funds. Adjustments usually include moving transactions for general capital assets and general long-term liabilities from the operating statement to the balance sheet. Other reconciling items may include revenue and expense accruals or adding the internal service fund residual net assets. Transfers between governmental funds, a state grant awarded and received for road repairs that were completed this fiscal year, and salaries payable at the end of the current year that will be paid at the beginning of the subsequent year are reported in both statements, and would therefore not be reconciling items. Property tax revenue must be available to be recognized under modified accrual accounting; since the revenue is not available, there is no revenue recognition. However, property tax revenue would be recognized in the government-wide statement of activities, which uses full accrual accounting and is not constrained by the “availability” criteria; thus, it is the only reconciling item.

Answer 101

General long-term liabilities should be reported in the governmental activities column in the government-wide statement of net position, not the government-wide statement of activities. Further, bonds which will be serviced by an enterprise fund should be reported in the business-type activities column of the government-wide statement of net position. The bonds for the garbage collection enterprise fund and the revenue bonds for the zoo would also be reported in each enterprise fund.

Answer 102

Under the cost method, the shares bought back are recorded in the treasury stock account at cost. When reissued at more than this cost, the difference is recorded as paid-in capital from treasury stock transactions. Therefore, the paid-in capital from treasury stock transactions is ($10 - $6) × 500 shares, or $2,000.

Answer 103

Financial accountability Thus, the basic criterion for determining whether another organization should be part of the reporting entity is financial accountability.

Answer 104

An interest expense that is greater than the cash payment made to bondholders Interest expense is Carrying amount × Effective interest rate. Cash payment amount is Face amount × Stated interest rate. In this example, the stated rate is less than the effective rate, so the cash payment is less than the interest expense.

Answer 105

Legal costs associated with obtaining a patent on a new product. Assets are probable future economic benefits obtained or controlled by a particular enterprise as a result of past transactions or events. (SFAC 6.25) The incorrect answer choices are research and development costs. Since there is a great deal of uncertainty about the future benefit of these costs, they must be expensed. (FASB ASC 730-10-05-3)

Answer 106

Discount the bonds at the market rate of interest and deduct bond issuance costs. To determine the issue price for a bond, the cash flows from the bond should be discounted at the yield, or market, rate. The cash flows include the principal repayment and interest payments calculated at the stated rate. The net proceeds are the issue price less the cost to issue the bonds. Note: Be aware that ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts; the recognition and measurement guidance for debt issuance costs were not affected by the amendments. Amortization of debt issuance costs also shall be reported as interest expense; issue costs will no longer be reported in the balance sheet as deferred charges.

Answer 107

supplementary information to the financial statements. FASB ASC 255-10-50-1 provides that "a business entity that prepares its financial statements in U.S. dollars and in accordance with U.S. generally accepted accounting principles is encouraged, but not required, to disclose supplementary information on the effects of changing prices." This information would be supplementary information to the financial statements.

Answer 108

Research is a planned search or critical investigation aimed at the discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, developing a new process or technique, or bringing about a significant improvement to an existing product or process. Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. A useful way to analyze activities to determine if their costs are research and development (R&D) costs is to establish if they relate to activities identified with the period prior to the beginning of commercial production. Only the redesign of a product prerelease qualifies as an R&D expense.

Answer 109

The amount of net gain or loss recognized in earnings when a hedged firm commitment no longer qualifies as a fair value hedge

Answer 110

The net amount of gains or losses included in the cumulative translation adjustment during the reporting period A description of the transactions or other events that will result in the reclassification into earnings of gains and losses that are reported in accumulated other comprehensive income The estimated net amount of the existing gains or losses at the reporting date that is expected to be reclassified into earnings within the next 12 months

Answer 111

General Unless specifically designated for a defined purpose, hospital debt is used for the general benefit of the entity and is secured with a pledge of collateral (such as a building or major equipment) that would have the item classified as a general fund obligation rather than a specific-purpose obligation. Debt for an enterprise fund can only be classified in such a fund if the debt incurred for that enterprise activity is secured solely by the revenues of that fund.

Answer 112

FASB ASC 250-10-50-6 provides that accounting changes involving a change in reporting entities should be reported by restating the financial statements of all prior periods.

Answer 113

Are increases in net assets from results of operations, accumulated earnings less accumulated losses and dividends paid from inception. RE increases by net income, prior period adjustments, quasi-reorganizations RE decreases by net loss prior period adjustment, cash, property, stock dividends, treasury stock retirement.

Answer 114

a transfer of assets or an equity interest in the debtor in satisfaction of debt. OR a modification of the terms of an obligation Either - agreement between creditor/ debtor or imposed by law

Answer 115

``` Employers must accrue liability if the following four criteria are met P - Probable R - Reasonably Estimated O - Only Past Service V - Vested / Accumulated Rights ```

Answer 116

``` Beginning Inventory + Purchases = Goods Available for Sales - Ending Inventory = COGS ``` *IF EI overstated COGS will be understated, NI overstated. Remember NI closes to RE at year end.

Answer 117

Current Assets / Current Liabilities Measures how liquid a company is - the goal is to have assets exceed liabilities.

Answer 118

Total Cost - Salvage/ Total SL depreciation = composite life Total SL depreciation/ Total Cost of Assets = composite rate

Answer 119

TO - Transfer of ownership to Leasee BOP - Bargain Purchase Option 75 Lease Term= 75% or more of economic life of leased property 90 PV minimum lease payments equals or exceeds 90% of the FV of the property

Answer 120

AFV - Write Sub's net Assets to Fair Value SPICE - Stock, PIC, Retained Earnings are eliminated GOODNIght - Record Goodwill and non controlling interest

Answer 121

Goods out on consignment [include in inventory at cost we hold the tile] Goods HELD on consignment - do not include - we do NOT own the tile

Answer 122

Common Stock Dividend Share requires RETROACTIVE TREATMENT. They are assumed to be outstanding throughout ALL periods.

Answer 123

``` Probable- Events are likely to occur Reasonably Possible - Likelihood is remote but < probable Remote - NOT Likely Probable , can estimate = accrue Probable, can't estimate = Footnote Reasonable possible = Footnote Remote= Do not record or footnote ``` Note: if the company guarantees debt of another, must footnote Off balance sheet risks must be footnoted even if the loss is remote.

Answer 124

Net Income - Current Preferred Dividends / Weighted Avg of Common Shares Outstanding.

Answer 125

Dividends rec'd are NOT income they reduce the carrying value of the investment is not included in the income of the investor.

Answer 126

``` Allocates the cost of natural resources Four Factors Acquisition Cost Exploration Cost Development Cost Restoration Cost ``` Total Cost - Residual / Total Estimate Units Available = Depletion Cost per unit x units extracted = DEPLETION EXPENSE

Answer 127

an increase in COGS | and lower NET INCOME

Answer 128

Total Temporary differences x tax rate in effect when the tax differences wind down

Answer 129

Companies must disclose the type and amount of the temporary differences The nature and amount of each type of operating loss and tax carry forward There is no requirement to disclose permanent differences

Answer 130

Measures a company leverage - indicates what proportion of debt vs. equity the firm uses. Total Liabilities / Shareholder Equity

Answer 131

Shows the financial leverage of a firm. The lower the ratio the less risk. Long term debt / LT debt+ Preferred Stock+Common Stock

Answer 132

A leverage ratio shows the percentage of the assets that are financed with loans and obligations that last greater than 1 year. Ideally, decreases over time. Long-term debt/ Total Assets

Answer 133

DSCR < 1, Negative Cash Flow Net Operating Income/ Total Debt Service

Answer 134

Measures the firm's ability to meet it's interest payments. How many times can a company cover its interest? EBIT/Interest Payment

Answer 135

Software cost are capitalized and reported at the lower or unamortized cost or NRV. The annual amortization is the greater of the gross revenue for a product or the straight line amortization

Answer 136

Operating Cash Revenues Less Cash Exp Unrestricted Contribution Pledges Unrestricted Interest / Dividends Investing Buy and Sell investments PPE Buy or sell works of Art Financing Borrowing or re-pay debt Contributions restricted for Long-term purposes Interested Dividends Restricted for long-term purposes

Answer 137

Program Revenues include charges to user for services provided such as licenses, permits, fees, fines, charges for water and sewer and swimming pool usage fee

Answer 138

Cumulative cost to date/ estimated cost at completion x estimated profit =- profit to date Must consider if they have already recorded some of the profit Construction in progress includes: current period construction cost and any profit that they get to record in that time period.

Answer 139

Financial Statement Reporting for Pensions Measured as the difference between FV of the plan assets and PBO Pension Assets - always non-current Liabilities are reported current or NON-current If more than 1 pension - combine as either an asset or liability.

Answer 140

Ending Balance of Plan Assets at FV LESS Beginning Bal of Plan Assets at FV LESS Contributions EQUALS Actual Return

Answer 141

Total Sales - Cogs / Total Sales = Gross Margin %

Answer 142

``` PPE Intangible Assets Investment Property Biological Assets Freight Cost would be capitalized Interest Cost would be expensed ```

Answer 143

N (n+1) / 2 n = useful life Example 4(4+1) = 20 /2 = 10 Useful life / denominator Example 4/ 10

Answer 144

PPE whose fair value can be measured reliably are carried at a revalued amount Revaluation increases are recognized in OCI and accumulated in equity under revaluation surplus Revaluation decreases are recognized in P & L Decreases are recognized in OCI to the extent of any credit balances existing in the revaluation surplus related to the asset

Answer 145

Economic Resources and the accrual basis of accounting

Answer 146

An accelerate depreciation method DO not reduce by Salvage Value DO not depreciation below Salvage Value

Answer 147

The statement of net assets available for benefit plans must include Total assets Total liabilities Net assets reflecting all investments Net assets for benefits NOT - NEt Assets reflecting benefits at cost

Answer 148

Stock Dividends are accounted for by reclassifying a portion of retained earnings as contributed capital. THey do NOT reduce assets or increase liabilities Total Stockholder equity remains unchanged.

Answer 149

Under Fund Accounting each fund is a separate fiscal and accounting entity with self-balancing set of accounts recording cash and other financial resources together w/ all related liabilities and residual equities and balances with are segregated for the purposes of carrying out specific activities or objectives.

Answer 150

1 Criteria must be met 1) Unit must provide services almost entirely for the benefit of the primary government 2) if the component debt will be repaid with resources by primary government 3) If the governing body is essentially the same. If one of these criteria are not met, all other affiliated tax-exempt entities whose resources entirely benefit the principal gov't are discretely presented.

Answer 151

1) Determine CV up to retirement 2) Removed unamortized premium discount bond issue cost 3) Determine Gain or Loss

Answer 152

Cost of Goods Sold/ (average Inventory) which is Beginning Inv + Ending Inv/ 2

Answer 153

Securities transferring FROM trading - unrealized gains or losses have already been recognized in earnings and will not reverse Transfer into the Trading Category - unrealized losses shall be immediately recognized Ex Cost $75 Adjusted to $30K FMV $60K So it went down $45K and then up $30K the net impact is $15K

Answer 154

When FIFO is used, the inventory and COGS will be the same under both methods When LIFO is used the inventory and COGS may NOT be the same value at the end of the month under both methods.

Answer 155

Under LIFO - last unit purchases is the first unit sold - higher COGS lower net income. Under FIFO - First unit purchased - First Unit Sold Lower COGS - higher net income

Answer 156

FIFO is a balance sheet method Recent prices are on the balance sheet Old prices are in COGS

Answer 157

LIFO is income statement Method Oldest prices are on the balance sheet and does not reflect the true value of inventory

Answer 158

``` Specific Identification FIFO LIFO Average Cost NOTE: under IFRS PROHIBITS LIFO but permits FIFO and Average Cost ```

Answer 159

Take the mark up on cost / 100+ Mark up Example; 25/ 100 +25 = 20% Then COGS is the 80% (100-20) of SALES

Answer 160

``` Determine Cost Determine Ceiling (NRV) Determine Floor (market) Evaluate NRV - Profit Margin Pick the lower of cost or market ```

Answer 161

Lower of Cost or NRV (LCNRV) Specific Identification Weight Average FIFO Lower of Cost or Market (LCM) LIFO Retail Inventory

Answer 162

Goods Out - Our inventory Someone is trying to sell Goods held - Do not include in our inventory We do not have the tile

Answer 163

Internal Service Funds are used to account for in-house business enterprise activity (ie. to account for the financing of goods and services provided by the government or department or agency) on a cost reimbursement basis. This is a PROPRIETARY FUND and uses ACCRUAL ACCOUNTING

Answer 164

Face amount x Stated interest rate x time $800,000 x .08 x 3/12 =16,000

Answer 165

Installment Sales - COS / Installment Sale= % x that current years sales

Answer 166

Two methods of accounting for investments. Equity - investments 20% to 50% Cost If < 20% *Note: Under the cost method the only income earned is when sub sends parents DIVIDENDS

Answer 167

* Requires an impairment test at each reporting date and record impairment if assets CARRYING VALUE Exceeds the recoverable amount.

Answer 168

Loss Reported as part of income from continuing operations After impairments have occurred the adjusted carrying amount of the new asset is its new accounting base Subsequent reversal of an impairment loss is prohibited under GAAP

Answer 169

Impairment of limited life Asset 1) Recoverability Test (if the sum of the expected futuren net cash flows undiscounted is less than carrying value an impairment has occurred) 2) FV Test of asset Impairment of Identifinte life INTANGIBLE ASSET (EXCLUDING GOODWILL) 1) FV Test ONLY Impairment Goodwill- at reporting Level or one level below operating segment 1) If the FV < CV net asset then perform test 2 2) Determine FV of GW and compare to the CV

Answer 170

To provide information that is useful to present and potential invenstors, lenders, and creditors

Answer 171

``` Fundamental Qualities 1) Relevance Predictive Value Confirmatory Value Materiality 2) Faithful Representation Completeness Neutrality Free From ERROR ```

Answer 172

1) Comparability 2) Verifiability 3) Timeliness 4) Understandability

Answer 173

Assumptions: Economic Entity, Going COncern, Monetary Unit, and Periodicity Principles- Measurement (Most use historical cost) some use FV. Revenue Recognition = Realizable or Earned

Answer 174

1) Identify Reporting Issue 2) Decide whether to add to the technical Agenda 3) Board Deliberates 4) Exposure Draft 5) Public Round Table 6) Staff Analyzes Data 7) Board Deliberates - provision by majority vote 8) Issue ASU

Answer 175

If an asset CV is greater than FV impairment loss must be recognized REcord new asset at the adjusted BV of the OLD Generally, ignore gains, recognize losses IF CASH REC'd - Cash/(Cash+FV NEw asset) * realized Gain **realized gain is Cash + FV Rec'd - OLD BV

Answer 176

This means the future cash flows of the company area expect to change significantly in terms of risk, timing or amount. Accounted for on the basis of the FV of asset given up or received Gains or losses are immediately recognized

Answer 177

Beginning Bal of PBO = 480,000 Plus Interest on PB = +48,000 (10% * 480,000) Plus Service Cost - Current +400,000 Less Benefits Paid = 0 Ending PBO = 928,000

Answer 178

A change in accounting estimate is not considered a prior period adjustment, and is handled on a prospective basis only. It would not be shown on the Statement of Retained Earnings. The correction of an error must be handled as a prior period adjustment -Corrections are shown net of tax. On the day that the dividend is paid (i.e., distributed), the liability is eliminated, and Cash is reduced; there is no effect on Retained Earnings. Stock splits do not affect retained earnings, although the number of shares increases and the book value per share decreases, which would be reflected on the balance sheet and statement of stockholders’ equity. Property dividends are an alternative to cash or stock dividends, and reduce retained earnings by the fair market value of the asset provided on the date of declaration

Answer 179

Classified as current assets Carried on the balance sheet at FV Unrealized gains or losses go to to the income statement NOTE: the basis used to compute the realized gain or loss is the NEW revised cost basis

Answer 180

Seller REtains the ownership until goods reach the destination. Freight OUt Exp for the Seller - Buyer has NO expense

Answer 181

Ownership passes when seller delivers the goods via. common carrier. Seller retains the title until the goods leave shipping point Freight in = COGS Part of the buyer's inventory

Answer 182

The related unrealized holding losses on AFS security is a DEBIT balance when recognizing a loss When the securities are sold for a loss equal to the unrealized loss previously recognized in OCT you should CREDIT OCI for the removal of the loss.

Answer 183

FASB ASC 845 10 30 1 generally specifies that FV should be used to account for non-monetary exchanges unless the exchange does not have commercial substance.

Answer 184

Current Asset Increases + Cash NI, Decrease - Subtract Cash NI Current Liability - Increases Subtract NI, Decreases add NI **Adamant, Colossal, Approaches, Increase Customer Loyalty Direction.

Answer 185

TRUE - Debit RE Credit Capital Stock Account **** Included in EPS

Answer 186

PRICE - (yield = market rate) (par = face amount) Bond has a face amount of principal amount to be repaid and a coupon rate which when multiplied by face amount states the amount of actual cash interest paid to the bond owner annually. The PV of these two rights = VALUE of the bonds

Answer 187

When - Date of Grant How - Fair Value-Based Approach Recommend - Black Shole Binominal Pricing ``` DEVILS- Dividend - what amount is expected Exercise Price Volatility of Stock Interest Rate Life of the option - how long is it viable Stock Price ```

Answer 188

Budgetary Fund Balance is either debited or credited for difference in inflows vs. outflows When estimated INFLOWS exceed OUTFLOWS Budgetary Fund Balance is credited for the difference

Answer 189

3 Categories of Debt Instruments 1 HTM 2 FV thru Profit and Loss (FVTPL) 3 FV thru OCI (FVOCI) Trading Investment in Equity are generally measured at FVPL Management can make an irrevocable election if FVTOCI should be used if the instrument is NOT held for trading

Answer 190

1 Must be traded on an active market 2 Option to use this method must be made at initial recognition 3 The election is NOT revocable 4 Asset is measured at FV at the end of each period 5 Any profit or loss is recorded in earnings for that period

Answer 191

Revaluation losses are reported on IC statement unless they reverse as part of a revaluation gain (OCI) Revaluation gains are reported in OCI and accumulated equity a revaluation surplus unless they reverse a revaluation loss (inc statement)

Answer 192

When transferring from one portfolio to another on the day of transfer you must write the security down to FV Securities must enter the portfolio at FV

Answer 193

TRUE Entry is Debit Cash Credit Dividend Revenue

Answer 194

Dividends are recorded as following Debit to Cash Credit INVESTMENT in SUB

Answer 195

1 Commitment involving financial instruments 2 Written Loan Commitments 3 Rights and Obligations Under an insurance contract that is NOT a financial instrument 4 Rights and Obligations under a warranty that is not a financial instrument 5 A Host of FInancial Instruments resulting from a separation of an embedded derivative.

Answer 196

A non- monetary exchange is usually based on FV If the exchange lacks commercial substance it is measured at BV before the exchange.

Answer 197

1 Residual Value 2 Penalty for failure to renew leases 3 BPO

Answer 198

When a payment is made at the beginning of the lease the PV factor is different because the first payment contains NO interest. Look where it says ordinary annuity or not. Annual payment x PV of an annuity due at a certain % Residual value will be PV of $1 at a certain percent

Answer 199

All OVERFUNDED Plans should be combined and shown as one amount on the balance sheets All UNDERFUNDED Plans should be combined and shown as one amount on the balance sheet.

Answer 200

Credit budgetary fund balance Adoption of the operating budget is recorded by debiting appropriate budgetary accounts for estimated inflows (“estimated revenues”) and crediting the appropriate budgetary accounts for estimated and approved outflows (“appropriations”). “Budgetary fund balance” is debited or credited for the difference. In this problem, since estimated inflows exceed estimated outflows, budgetary fund balance is credited for the difference. (Note: This budgetary entry is reversed at the end of the period as the first closing entry.)

Answer 201

$84,000 Under the cash basis of accounting, revenue is recognized when cash is received and expenses are recognized when cash is disbursed; income and expense items are not accrued. Cash basis accounting results in a measure similar to net income called net operating cash flow, which is the difference between cash receipts and cash disbursements. Savor should report cash-basis pretax income of $84,000 ($100,000 accrual income less the $10,000 accounts receivable accrual increase, less the $6,000 cash paid for payables). Note that the cash method is not an allowable method under GAAP unless there is no material difference from the accrual method.

Answer 202

Under the cost method, the shares bought back are recorded in the treasury stock account at cost. When reissued at more than this cost, the difference is recorded as paid-in capital from treasury stock transactions. Therefore, the paid-in capital from treasury stock transactions is ($10 - $6) × 500 shares, or $2,000.

Answer 203

Capitalized and depreciated over 8 years Leasehold improvements are capitalized and depreciated over the term of its useful life, or the lease term, whichever is shorter. In this case the useful life of 8 years would be used for depreciation.

Answer 204

Loss of plant or inventories as a result of fire or natural disaster that occurred after the balance sheet date but before financial statements are issued or are available to be issued The other answer choices are incorrect because an entity must recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet.

Answer 205

$20,000 If the sale of the asset is for a realized loss, as here, of $20,000 (sales price of $430,000 less carrying amount of $450,000), then a loss is usually recognized immediately. There is an exception to this, and such is the case here. The loss is realized in the sales price, but the sales price is artificially too low. The asset is actually worth more than its selling price and more than its carrying value. In such a case, the loss is deferred.

Answer 206

Financial Statements 1. Statement of Financial Position: Balance sheet—reports assets, liabilities, and net assets 2. Statement of Activities: Reports events impacting net assets, and inflows/outflows of economic resources 3. Statement of Cash Flows: Reports sources and uses of cash 4. Statement of Functional Expenses (VHWO): Reports service efforts