CPA FAR 3_TLR

Question 1

Rein Inc. reported deferred tax assets and deferred tab liabilities at the end of the previous year and at the end of the current year. For the current year ending, Rein should report deferred income tax expense or benefits equal to the:

Answer 1

the sum of the net changes in deferred tax assets and deferred tax liabilities

The basic way to compute income tax expense has measured the value of deferred tax assets and deferred tax liability at the end of the period.

Therefore, income tax expense is basically the sum of the changes in those deferred tax assets and liability accounts.

Question 2

Derivative instruments

Answer 2

Derivative Instruments must be recognized on an entity’s balance sheet at fair value. The gains or losses resulting from changes in the derivatives fair value during the period must be included in net income of the period unless the derivative is used as a hedge and the hedge qualifies for hedge accounting.

Question 3

SEC Filing Deadlines

Answer 3

Three categories of filers
Non-accelerated
Accelerated
Large Accelerated

Non-accelerated filers have public floats less than $75 Million - 10-K must be filled within 90 days and 10-Q after 45 days after the end of fiscal year.

Accelerated have a public float of at least $75 M but less than $700 M, must file 10-K within 75 days and 10-Q within 40 days after the end of fiscal year.

Large Accelerated filers have public float greater than $700 M or more - 10-K must be filed within 60 days and 10-Q within 40 days after the end of the fiscal year.

Question 4

Stock Rights

Part 2 V 57

Answer 4

Stock Rights
Allow existing shareholders to purchase additional shares at a price that is USUALLY below the current market price on the data the rights are granted
Granting of stock rights is a MEMO ENTRY only
Exercise of Rights JV

Cash XXX
Common Stock (par value) xxxx
Additional PAID IN Capital xxxx

Question 5

In a statement of cash flows, which of the following items is reported as a cash outflow from FINANCING activities?

1. Payment to retire mortgage notes
2. Interest payments on mortgage notes
3. Dividend payments

Answer 5

Answer: I & III
Financing activities include cash paid for dividends and principal payments to creditors.

Remember Financing activities include all transactions related to obtaining resources from owners and providing them with a return on or of their investments and to obtain and repay debt, including short term and long terms debt, mortgages, capital leases,self-financed debt, and debt incurred to acquire treasury stock.

Interest payments are cash flows from OPERATING activities.

Question 6

Troubled Debt Restructuring

Answer 6

Assets Conveyed in a troubled debt restructuring should be valued at their FAIR value in computing a gain or loss.
 

Question 7

Pension Expense

Answer 7

S Service Cost (+)
I Interest on Pension Benefit Obligation (+)
R Return on Plan Asset -expected (-)
P Prior Service Cost Amort (+)
A Actuarial Gain (-) or Loss (+)
T Transition Asset (-) or Obligation (+)

Question 8

Stock Dividends

Answer 8

Stock Dividends are accounted for by reclassifying a portion of retained earnings as contributed capital.
THEY DO NOT REDUCE ASSETS OR INCREASE LIABILITIES. Therefore, total stockholder’s equity is not changed.

Stock dividends are a distribution of the corporation’s own stock (treasury stock or newly issued shares) to stockholders in proportion to the number of shares outstanding.

They do NOT change the par value per share of shareholder’s proportional interest in the corporation, BUT THEY DO INCREASE THE NUMBER OF SHARES ISSUED AND OUTSTANDING.

A stock dividend does not change assets, liabilities or TOTAL stockholder equity. It merely transfers amounts between equity accounts.

Stock Dividends ARE used in calculating the weighted average number of shares outstanding for EPS computations and are GIVEN retroactive treatment as if the shares had been outstanding the entire period.

Stock dividends represent a return ON investment to shareholders.

Question 9

The Modified accrual basis of Accounting

Answer 9

This is used for GOVERNMENTAL FUNDS and characterized by recognition of revenue prior to receipt of cash: governmental revenues and other governmental fund financial resource increments must be 1) MEASURABLE and 2) AVAILABLE (collectible within or soon after the current period so that it is available for payment of obligations in current during the same period).

The exception is for unmatured interest on general long-term debt which should be recognized when due.

Question 10

FUND TYPES

Answer 10

Governmental Funds – MODIFIED ACCRUAL
•	General Fund
•	Special Revenue Funds
•	Capital Project Funds
•	Debt Service Funds
•	Permanent Funds

Proprietary funds – ACCRUAL ACCT’G
• Enterprise Funds
• Internal Service Funds
*Proprietary funds except for internal service funds are business-type activities

Fiduciary Funds – ACCRUAL ACCT’G
• Trust Funds (investment, private purpose, pension
• Agency Funds
 

Question 11

Stock as Compensation

Part 2 V 57

Answer 11

Issuing stock for services provided is considered a non-monetary exchange

Record at FV of stock issued or services performed, whichever is more clearly evident

Any excess between the value of the service and the par/ stated value of the stock is credited to APIC

Question 12

IFRS Foreign Currency Translation

Answer 12

If Functional Currency = Presentation Currency – Gains / losses on translations are recognized as profit or loss in the period.

If Functional Currency does NOT equal Presentation Currency – translation gains/losses are recorded in OCI.

Question 13

Notes Receivable Discounting Terms

Part 2 V 8

Answer 13

Maturity Value = principal and interest at the original terms – amount the bank will receive

Principal + [Principal + Rate+ Time]

Discount Rate – The annual interest rate charged by the bank

Discount Period – the banks waiting period – time between the note’s sale and note’s due date

Discount – fee charged by the bank

Maturity Value X Bank’s Discount Rate x Bank’s Waiting period

Cash to the company
Maturity Value – Bank Discount

Question 14

Not-for-Profit Organization Net Assets Classifications

Answer 14

There are three classes of net assets:

Permanently Restricted – limited by donor-imposed restrictions that are permanent in nature (e.g. the donor stipulates that the donated assets must be maintained permanently or the asset is expected to provide future benefit to the entity on an on-going basis such as cash, securities, land). Board of director imposed restriction is on assets do not qualify an asset as restricted.

Temporarily restricted net assets – limited by donor imposed restrictions on the timing of use or purpose of use of the donated assets

Unrestricted Net Assets portion of net assets not temporarily or permanently restricted by donors

Question 15

Tech Co. bought a trademark on Jan 2, two years ago. Tech accounted for the trademark as instructed under the provisions of FASB 142 during the current year. The carrying value at the beginning of the year was $38,000. It was determined that the cash flow will be generated indefinitely at the current level for the trademark.

What amount should Tech Report as amortization expense for the current year?

Answer 15

$0 – Indefinite life intangibles are not amortized. They instead must be tested for impairment each year to determine if their value has been impaired.

Question 16

FUTURE DEDUCTIBLE AMOUNTS (FDA)

Answer 16

Future Deductible Amounts (FDA) = DTA (Deferred Tax Assets)

DTA = the increases in taxes refundable (or saved) in future years as a result of deductible temporary differences existing at the end of the current year.

Ex: Warranty Claims are accrued on the books but on the TAX REPORT warranty claims are not recorded until actually paid.

Question 17

FUTURE TAXABLE AMOUNT (FTA)

Answer 17

Future Taxable Amounts (FTA) = DTL (Deferred Tax Liability)

Deferred Tax Liability (DTL) = the increase in Taxes Payable in future years as a result of taxable temporary differences existing at the end of the current year

Ex: SL Depreciation is used on books but taxes use accelerate depreciation.

Question 18

Stock Subscriptions

Answer 18

1. A contractual agreement between a corporation and a buyer, for a certain number of shares at a certain price
2. Stock Certificates are issued once the subscription has been paid in full
3. Subscriptions NOT paid at year end are a contra-equity account

Question 19

FUND BALANCE

Answer 19

Fund balance is the difference between the financial assets and any deferred outflows of resources of a governmental fund and the liabilities and deferred inflow of resources of that fund.
Fund Balance is required to be reported in the following five categories
a. Non spendable
b. Restricted
c. Committed
d. Assigned
e. Unassigned Fund Classification

Question 20

The Financial Reporting Framework for small and medium sized entities has been developed by the:

Answer 20

AICPA

The AICPA found the need to develop a financial reporting framework for smaller privately managed businesses. The framework provides an intuitive and understandable framework that is relevant, simplified, and cost effective

Question 21

FASB

Answer 21

The Financial Accounting Standards Board is an independent authoritative body, created in 1973 to replace the AICPA Accounting Principles Board, and authorized by the AICPA Code of Professional Conduct as a promulgator of generally accepted accounting principles (GAAP).

The FASB’s main purpose is to establish accounting and reporting standards for large, publicly owned corporations whose share of stocks are traded and registered in the US.

Question 22

With regards to infrastructure, how should a change from depreciation to the modified approach to be reported?

Answer 22

As a change in accounting ESTIMATE – NOT requiring a restatement of prior periods

According to GASB 1400.107 footnote 9, a change from depreciation to the modified approach should be reported as a change in an accounting estimate and this change would NOT require a restatement of prior periods.

Question 23

The Rule Making Process of the SEC

Part 1 V 22

Answer 23

Rulemaking is the process by which federal agencies implement legislation passed by Congress and signed into law by the President.

The SEC outlines the following steps in the rulemaking process:

1) Conceptual Release
2) Rule Proposal
3) Rule Adoption

Question 24

Research and Development

Part 3 V 12

Answer 24

FASB ASC 730-10-20 defines research and development as “planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in the developing a new product or services or a new process or technique in process”
Development is the translation of researched 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.

Question 25

GOODWILL

Answer 25

Good will is to be tested for impairment at the level of the REPORTING unit or at one level below an operating segment. NOTE: IFRS = CASH GENERATING UNIT (CGU)

Question 26

Other Comprehensive Bases of Accounting (OCBOA)

Answer 26

Originally referred to as other comprehensive bases of accounting, special framework are alternatives to GAAP reporting. These frameworks include the following: Cash Basis Modified Cash Basis Income Tax Basis Financial Reporting Framework for small and medium size business Public business entities framework NOTE: Basis of Accounting used by an entity to comply with the financial reporting requirements of a lending institution

Question 27

Retained Earnings Part 2 V 58

Answer 27

Retained Earnings / Deficits is adjusted for: 1) Net income or net loss 2) Dividends declared (cash, property, stock) 3) Prior Period Adjustment (PPA) 4) Cumulative Effect of changes in accounting principles 5) Quasi Re-organizations 6) Appropriations

Question 28

ON which of the following dates is a public entity required to measure the cost of employee services in exchange for an award of equity interests, based on the fair market value of the award?

Answer 28

DATE OF GRANT Both the intrinsic value method and the fair market value method sue the GRANT DATE to measure the cost for stock issued to employees. At the grant date, one must compute the value for the shares used as compensation, which will be earned and taken as an expense over the service period.

Question 29

SECURITIES AND EXCHANGE COMMISSION

Answer 29

S – X = Contains info regarding FINANCIAL STATEMENTS that must be submitted S-K = Contains INSTRUCTIONS for filing non-financial statements / forms required by the SEC S-T = instructions for electronic filing of required SEC forms.  

Question 30

Current liabilities

Answer 30

A short-term obligation should be excluded from current liabilities IF the entity intends to refinance the obligation on a long term basis and that intent is supported by an ability to consummate the refinancing.

Question 31

Special Purposes Governments engaged solely in business type activities (such as utilities) only present?

Answer 31

Proprietary Fund (enterprise fund or internal service funds) financial statements. The DO not present government WIDE statements, Governmental FUND statements or fiduciary fund statements. The financial statements, that must be presented depends upon the circumstances. Note that all governments must include M&DA, notes to the financials, and other required supplementary information.

Question 32

Types of Bonds

Answer 32

Secured - are back by collateral or pledge Debenture (junk)- are not backed by collateral; risky and pay a high rate of interest Deep discount bonds (zero interest) are sold at a discount the buyer receives interest paid off at maturity Callable bonds give the issuer the right to call the bonds before maturity Income Bonds pay no interest unless the issuer is profitable Revenue bonds pay interest from specific revenue sources

Question 33

Types of Bonds

Answer 33

Term bonds mature AFTER a period of time Convertible bonds can be converted into other securities of the issuer for a period of time after issuance Commodity-backed bonds (asset-linked) are redeemable in measure of a commodity Registered bonds are issued in the name of the owner, the certification has to be surrendered when the bond is sold and a new certification has to be issued. Bearer or coupon bonds are not recorded in the name of the owner can be transferred easily

Question 34

Fiduciary Funds

Answer 34

Used to account for the resources (and any related liabilities) held by a government entity for the benefit of others (not to support the government's programs) either in a trustee capacity or as an agent for others. Fiduciary funds include 1) private-purpose trust fund; 2) investment trust fund 3) Pension Trust Fund 4) Agency Fund Fiduciary funds use ACCRUAL accounting.

Question 35

Assuming constant inventory quantities, which of the following inventory costing methods will produce a lower inventory turnover ratio in an inflationary economy?

Answer 35

FIFO (first in, first out) Inventory turnover is the division of cost of goods sold by average inventory. In an inflationary period, rising prices will cause LIFO cost of goods sold to be highest (from recent purchases) and LIFO ending inventory to be lowest (earliest purchases).

Question 36

Quick Ratio

Answer 36

Current Assets - Inventory / Current Liabilities Measures liquidity of a company and it's ability to meet their obligations

Question 37

What item is NOT disclosed in the statement of cash flows when prepared under the direct method either on the face of the statement or on a separate schedule?

Answer 37

A reconciliation of ending retained earnings to net cash flows from operations.

Question 38

To determine the PV of notes receivable for noninterest or low bearing interest notes you should-

Answer 38

Determine the PV using whichever method is more clearly determinable Prevailing / Market Rate (if given) OR Fair Value of the property/ goods/ services exchanged

Question 39

How should changes in Financial Statements that are in effect, the statements of a different reporting entity be handled?

Answer 39

The Financial Statements of all prior periods should be restated. FASB ACS 250-10-50-6 provides that accounting changes involving a change in reporting entity should be reported by restating the FS of all prior periods.

Question 40

Capital Assets are NOT reported in the Governmental Funds - True or False?

Answer 40

TRUE - The general fund (as a governmental fund) is accounted for from the current financial resources perspective. Therefore, capital assets and revaluations of capital assets are not reported. In the government - wide statements, impairment is a revaluation of a capital assets that is reported as an expense in the statement of activities. Capital assets are NOT reported in gov't funds but they are reported in proprietary and fiduciary funds as well as the gov't wide or entity wide statements.

Question 41

Lys City records a compensated absence liability as a general gov't liability. The salary rate used to calculate the liability should normally be the rate in effect:

Answer 41

At the balance sheet date THere is one exception for cases in which a justifiable lower amt should be used. Example if the amount is based upon a contract.

Question 42

Preferred Stock

Answer 42

Preferred Stock receives priority over common stock for: a) dividends and b) liquidating payments Preferred Stock features include: a) cumulative / noncumulative b) participating/ non- participating Preferred Stock does not usually have voting rights

Question 43

Cumulative Preferred Stock

Answer 43

any preferred dividend not paid - ACCUMULATES Must be paid before dividends paid to Common Shareholders Often called Dividend in Arrears Must be disclosed in total and on a per share basis

Question 44

NONCUMULATIVE PREFERRED STOCK

Answer 44

any preferred dividend not paid - DOES NOT ACCUMULATE Preferred losses - the right to receive unpaid dividends

Question 45

Operating Segments

Answer 45

Requires that the external revenue of reportable segments must be at least 75% of total consolidated revenue Significant revenues> 75% Add other segments until 75% is met If the total external revenue of the reportable segment is less than 75% of consolidated revenue, additional segments must be added until at least 75% consolidated revenue is included in the reportable segments.

Question 46

Operating Segments are reported if any one of the three thresholds are met:

Answer 46

Revenue Asset Profit or Loss Remember there is a 10% test

Question 47

Percentage of Completion must generally be used if:

Answer 47

the company can make the reasonably dependable estimate of the extent of progress towards completion, contract revenues, and contract cost AND both the buyer and sellers can be expected to satisfy their obligations under the contract.

Question 48

Change in Acct'g Principal

Answer 48

Change from one generally accepted accounting principle to another generally accepted accounting principle The retrospective approach is used where the cumulative effect is reported as an adjustment to the beginning of the year retained earnings of the earliest year presented. The only exception is when FASB issued a new pronouncement.

Question 49

Lower Cost of Market

Answer 49

At the end of the fiscal year, inventory must be assessed for loss of value Market value is defined as replacement cost as long as the replacement cost is less than NRV and above NRV minus a normal profit margin FIFO and Average Cost = measured at the lower of cost and NRV If NRV of inventory is lower than it cost the difference is recognized as a loss of earning in the period in which it occurs.

Question 50

The date of declaration

Answer 50

Date on which the Corporations Board formally announces that a dividend will be paid The debit to Retained Earnings will be recorded on this date - the credit can be Dividends Payable until the date of payment. Stock Dividends are not legally enforceable until paid therefore no entry is made on the date of declaration.

Question 51

Comprehensive Income

Answer 51

Starts with NET INCOME Includes all changes in Equity during a period EXCEPT those resulting from investments by OWNERS INCLUDE Unrealized Gains and losses on AFS securities Translation Gains and Losses on Foreign Currency Pension Over/ Under Funded Calculation Gains and Losses on cash flow hedging derivative instruments.

Question 52

Foreign Currency Translation

Answer 52

At each balance sheet data account, balances must be adjusted to reflect changes in exchange rates during the period since the last BS date

Question 53

Permanent Differences

Answer 53

Permanent differences are caused by items that: Enter into pretax financial income but NEVER into taxable income Enter into TAXABLE income but never into pre-tax income There are NO deferred tax consequences to be recognized. Examples: premiums paid on key person life insurance policy, life insurance PROCEEDS collected, interest income from MUNICIPAL bonds are NEVER taxed, dividend received the deduction (Reminder - 80% is NOT taxable), and Corporate Federal Taxes Paid.

Question 54

Which basis of Accounting is required for a city's government-wide financial statements?

Answer 54

All data in the government-wide statements are presented on the accrual basis even for governmental activities.

Question 55

IFRS Lease Criteria

Answer 55

The lease has a FINANCE lease if any of the following exist TO - Transfer of Ownership BOP - Bargain purchase option Term - lease large % of remaining life of the asset PV of lease payments are equal to substantially all of the FV of the asset Assets are specialized and can only be used by lessee Any gains/losses on asset accrue to lessee Lessee can continue lease at lower than market value rent

Question 56

Which of the following should normally be considered ongoing or central transactions for a not for profit hospital? Room and Board Fees Recovery Room Fees

Answer 56

Both Both room and board fees and recovery free are revenues from services provided to patients and therefore are ongoing major or central activities of the organization.

Question 57

IFRS - Revenue Recognition

Answer 57

Revenue Transactions are divided into four categories Sale of goods Rendering services Revenue from interest, royalties, and dividends Construction contracts - percentage of completion

Question 58

Cash Method of Determining Taxable Income

Answer 58

Under the cash basis, expenses are deductible only when actually paid with cash. THere is no current deduction for capital expenditures. The expense for capital expenditures will be recognized int he form of depreciation, amortization, or depletion.

Question 59

Fixed assets donated to a governmental unit should be recorded:

Answer 59

Fixed assets donated to a governmental unit should be recorded at ESTIMATED FAIR VALUE WHEN RECEIVED Plus any ancillary charges, if any.

Question 60

SEC Reporting

Answer 60

Reg S- X = Accounting Rules and Requirement as to the form and content Reg S - K = instructions for filing nonfinancial statement forms required by SEC. 8-K= Reports Current events Form 3 - A Statement of Beneficial ownership for corporate insiders

Question 61

Temporary Differences

Answer 61

Future Taxable Amount = DT Liabililty Future Deductible Amount = DT Asset

Question 62

Imposed Non-Exchange Revenue

Answer 62

Non-Exchange Revenues are separated into four categories: derived tax revenues, imposed non-exchange revenues, government-mandated non-exchange transactions, and voluntary non-exchange transactions. Property tax is imposed nonexchange revenue because they are levied or imposed by governments. Income and sales taxes are derived tax revenues as they are assessments imposed on exchange transactions.

Question 63

Bond Interest Terms

Answer 63

If issued at par - Stated or Face Value = Market Rate If issued below par - RECORD at discount Stated Rate < Effective Rate Bond rate is worse than market If issued above part - RECORD premium Stated Rate > Effective Rate Bond Rate is better than Market Rate

Question 64

Common Stock holder Rights

Answer 64

Considered basic ownership of a corporation, with control over management Rights include: voting, share in the corporation earnings, share in liquidating of corporate asset, after creditors and preferred stockholder claims

Question 65

EPS Formula

Answer 65

Net Income - Current Preferred Dividends / Weighted Average Common shared outstanding Preferred Dividends - back out the current preferred dividend whether paid, declared or accumulated When preferred dividends are cumulative, back out dividend whether declared or not Use basic EPS when a company has simple capital structure If a company has potentially dilutive securities, a company has complex capital structure, must show basic EPS and Diluted EPS.

Question 66

which of the following conditions must exist in order for an impairment to be recognized? 1) Carrying Value of the asset is LESS than Fair Value 2) Carrying Value of the asset is NOT recoverable

Answer 66

II only. If the undiscounted sum of estimated future cash flows for an asset or asset group is less than the asset or asset group's book value, an impairment loss may need to be recognized. The actual impairment loss is the difference between the BV and FV of the assets. NOTE: there is NOT an impairment loss if the FV EXCEEDS the Carrying Value (CV)

Question 67

International Accounting Standards Board

Answer 67

Independent, not for profit private sector organization working in the public interest. Objectives: 1) develop single-set of high quality globally accepted IFRS 2) Promote the use and application of those standards 3) take account of the financial reporting needs of emerging economies and small and medium-sized entities (SME's) 4) bring about the convergence of national accounting standards and IFRS to high-quality solutions

Question 68

If determining the actual historical cost of general infrastructure assets is NOT practical because of inadequate records, public institutions that report as special purpose governments either engaged only in governmental activities or engaged in both governmental and business-type activities should report major infrastructure assets using

Answer 68

ESTIMATED HISTORICAL COST.

Question 69

Liquidating Dividends

Answer 69

The liquidating dividend is that portion of the cash dividend that EXCEEDS the balance in retained earnings because other equity accounts must be debited. Example: Total amount of Cash Dividend =$400 LESS Retained Earnings = $300 Liquidating Dividend $100 Keep in mind, Liquidating dividend are a return OF the investment rather than a return ON the investment.

Question 70

Concerning disclosure of reverse repurchase and fixed coupon reverse repurchase agreements - how should the underlying securities be reported.

Answer 70

They should be reported as investments! They should NOT be netted on the balances. They should be reported as a fund liability captioned 'obligations under reverse repurchase agreements' and the underlying securities called investments. Interest cost should NOT be netted with interest earned on related investments. Credit risks need to be disclosed.

Question 71

Governmental Fund Balance Sheet Presentation

Answer 71

The balance sheet includes a separate column for each major governmental fund and a column with aggregated information for all other governmental funds and a total column for all governmental funds Governmental Funds are NOT reported by FUND type.

Question 72

When purchasing a bond, the present value of the bond's expected net future cash inflows discounted at the market rate of interest provides what information about the bond?

Answer 72

PRICE. The bond has a face amount of principal that will be repaid to the owner at the end of the term. The bond coupon rate when multiplied by the face amount or principal = the actual amount of cash interest paid to the bonder owner annually. The present values of these two rights is the value of the bond = rational for the price.

Question 73

During periods of rising prices,when the FIFO inventory method is used, a perpetual inventory system results in ending inventory cost that is:

Answer 73

the same as the periodic system. FIFO perpetual inventory will produce the same results as the periodic method. This is due to the fact that the FIRST IN units are removed under both methods. This is not true for any other inventory method other than specific identification.

Question 74

Which of the following would be reported as an INVESTING activity in a company's cash flow? Collection of proceeds from a note payable Collection of a note receivable from a related party Collection of an overdue AR from customer Collection of a tax refund from the gov't

Answer 74

Collection of a note receivable from a related party Investing activities involve asset transactions other than those related to operating results (e.g. accounts receivable from sales and taxes)

Question 75

Software Cost

Answer 75

Software to be sold, leased, or licensed Expense until reach technological feasibility (such as prelim stage and cost for training and maintenance) then CAPITALIZE cost (material, labor, capitalized interest) related to development - coding, hardware installation, testing Amortize capitalized cost on a straight-line basis.

Question 76

Corporations issuing stock should charge Retained Earnings for the market value of the shares issued in An Employee Stock Bonus A purchase of a Subsidiary a 10% Stock Dividend a 2 for 1 spilt

Answer 76

10% Stock Dividend FASB ASC 505- 20-30-3 provides that for issuance of additional shares less than 20 or 25% the issuing corporation should transfer from earned surplus. Fair value of new shares issued is transferred --> from retained earnings to capital stock and additional paid-in capital

Question 77

A town basic financial statements include information for major and non major gov't funds. There were no internal service or enterprise funds. One of the non major funds is the ROAD TAX FUND, which accounts for a share of the tax monies remitted by the state on a prorated basis. Individuals fund statements with prior year comparative dat would have to be presented if

Answer 77

a state law requires prior year comparative data for any individual fund receiving a prorated share of the state tax collection. Because the focus of fund financial reporting is on MAJOR FUNDS, non major funds aggregated and not shown separately.

Question 78

Proprietary FUNDS

Answer 78

The economic resources measurement focus and the accrual basis of accounting are used for proprietary funds and fiduciary funds. Proprietary funds consists of enterprise and internal service funds.

Question 79

Governmental FUNDS

Answer 79

The current financial resources measurement focus and the MODIFIED accrual basis of accounting are used for governmental funds. The general fund, capital project funds, special revenue funds, and debt service fund are all governmental funds.

Question 80

How are discontinued operations that occur at mid-year initially reported?

Answer 80

Included in net income and disclosed in the notes to the interim financial statements Discontinued operations should be reported separately, NET OF TAX, on the income statement for the interim period. Disclosure in the notes to the interim statements is required.

Question 81

The FASB guidance on accounting for investments of NOT FOR PROFITS provide that -

Answer 81

1) investments in debt securities are reported at market value 2) Investments in equity securities with readily determined market values are reported at market value 3) Other investments may be reported at cost or the lower of cost or market 4) Investment gains and losses are reported as changes in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations or by law.

Question 82

Notes OR accounts receivables from officers, employees or affiliated entities must be

Answer 82

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

Question 83

How should the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate by reported?

Answer 83

As a change in accounting estimate which is handled PROSPECTIVELY. So, this item would be considered a component of income from continuing operations. It is part of income from continuing operations because no special disclosure is required on the face of the income statement.

Question 84

River City has a defined contribution PENSION plan How should it be reported on the financial statements?

Answer 84

Amortize any transition assets over the estimated number of years of current employee's service. Disclosure of pension benefit obligations as well as the requirement to accrue all earned benefits relate to defined contribution plans.

Question 85

Consolidations Require - YE reciprocal accounts to be eliminated

Answer 85

A / R and A / P N / R and N / P Adv to Sub or Adv from Parent all must be eliminated Ex: Parent Liabilities = 450 + Sub liabilities + 200 - Intra -100= 550

Question 86

Bank Reconciliation

Answer 86

``` Balance per the books + NR Collected by the Bank + INcome Interest -Bank Service Charge -NSF + / - ERROR ``` Bank + Deposit in Transit - O/S Checks

Question 87

Voluntary Changes in Accounting Principal (ex: changing inventory methods)

Answer 87

RETROSPECTIVE APPROACH - a cumulative effect is reported as an adjustment to the beginning of the year retained earnings in the earliest year presented.

Question 88

Appropriate Retained Earnings

Answer 88

Have been set aside by the Board of Directors for specific use Intent is to isolate from payment to shareholders for a variety of reasons such as acquisition of land or buildings or reserve for legal settlement

Question 89

Statement of Revenue, Expenditures, and Changes in FUND Balances

Answer 89

Is presented by MAJOR fund The excess of revenue over or under expenditures is a REQUIRED subtotal All transfers are reported as Other Financing Sources and use Special items and extraordinary items are reported as Other Financing Sources and use

Question 90

Fund Balances

Answer 90

Fund balance classificiations 1 nonspendable 2 restricted - externally by creditors or by law 3 committed - by formal action of government 4 assigned - contraint by the government's intent to be used for a specific reason 5 unassigned

Question 91

Operating Segments

Answer 91

``` Required Disclosures 1 Assets by segment 2 Sales by Segment 3 Results of operation by segment 4 Reconciliation to the results of the operations for the entire enterprise. ``` Liability or cash flow by segment is not required

Question 92

The combining fund statements are

Answer 92

part of the Comprehensive Financial Report but no part of the basic financial statements The basic financial statements fund financial statements for government and proprietary fund focusing on major funds with nonmajor fund information aggregated or combined.

Question 93

Disclosure Principal

Answer 93

Certain info may be presented on either the face of the financial statements or in the notes to the financial statements. Disclosure int he notes to the financial statements is needed only when the information required to be disclosed is NOT displayed on the face of the financials Note disclosure includes essential information not supplemental.

Question 94

In a compensatory stock option plan for which the grant, vesting, and exercise dates are all different, the additional paid-in capital - stock option accounts should be reduced at what date?

Answer 94

The exercise date. Total compensation is determined at the date of the grant, based on the FV of the award date. The total compensation cost is recognized over the service period by recording the following Compensation Exp APIC Stock Options

Question 95

Statement of Cash Flows

Answer 95

Operating Activities - generally include transactions that enter into the determination of net income Investing activities - all transactions related to the making or collecting of loans and the acquiring and disposing of debt, equity, or PPE Financing - all transactions related to obtaining resources from owners and providing them w/ a return on their investment and repaying debt.

Question 96

Three classifications of freestanding financial instruments

Answer 96

Mandatorily redeemable financial instruments Obligations to repurchase the issuer's equity shares by transferring assets Certain obligations to issue a variable number of shares These three classes of financial instruments MUST be presented in the balance sheet as liabilities. They may NOT be presented between the liability sections and the equity section.

Question 97

Contribution Receivables

Answer 97

Contribution Receivables for UNCONDITIONAL contributions are reported at PRESENT VALUE of the expected cash flows EXCEPT those to be collected within 1 year which may be recorded at NET REALIZABLE VALUE. Conditional promises should not be record until the conditions are met. Contributions conditioned upon a certain event, should be recorded as a refundable advance.

Question 98

If a computer software arrangement has an agreement to deliver software that requires significant production, modification, or customization of software, what method of accounting should be used to recognize the revenue from the contract?

Answer 98

Contract Accounting - the percentage of completion.

Question 99

Software Cost

Answer 99

The annual amortization of capitalized software cost is the GREATER of: Ratio of current revenue to current and FUTURE revenues The straight line method over the remaining useful life of the software *Once technological feasibility has been established, all cost are capitalized and reported at the LOWER of unamortized cost or NRV

Question 100

Revenue, Expenses, Gains, losses net income or loss, and OCI are reported on the consolidated financial statements at the consolidated amounts, which include the amounts attributed to the owners of the parents and the NCI - True or False?

Answer 100

TRUE - The amount of the consolidated net income attributed to the parent and to the NCI must be clearly identified and presented on the face of the consolidated income statement.

Question 101

The replacement cost of an inventory item is below the NRV and above the NRV less a normal profit margin. The inventory items' original cost is above the NRV. Under the lower cost or market method, the inventory item should be valued at:

Answer 101

REPLACEMENT COST Market Value = Replacement cost as long as RC is less than NRV and above NRV - Less Profit Margin NOTE: FIFO and Avg. Cost Measured Lower-of-Cost-or-Net Realizable Value Lifo or Retail Inventory Lower-of-Cost-or-Market

Question 102

Under the deferred method of accounting for deferred income taxes, a credit balance int he deferred income taxes account that appears on the balance sheet

Answer 102

Does not represent a payable in the usual sense of the term payable. but instead results from temporary differences between the amount of income or expenses reported for tax purposes.

Question 103

Form 10-Q

Answer 103

Required Quarterly Report Includes Unaudited Financial Statements Must present the most recent quarter end balance sheet and the balance sheet for the end of the preceding fiscal year.

Question 104

Required Financial Statements Fund Financial Statements

Answer 104

The required financial Statements required fund financial statements include Fund Balance Sheet Statement of Revenue, Expenditures and changes in fund balances General Fund and major special revenue fund statement of revenues expenditures and changes in fund balance - budget to actual The budget comparisons may be presented as part of the required supplementary material.

Question 105

Long Term Note Receivable

Answer 105

LT N/R are recorded at PV Interest-bearing = Face Amount of NR - PV Assume Interest Rate Provided = Prevailing Rate *only discount if more than 1 year if less than 1 yr record at FACE AMOUNT

Question 106

IRFS Foreign Currency

Answer 106

Functional currency - primary economic environment in which the entity operates Foreign: Currency other than functional Presentation currency in which the financial statements are presented IF Functional = Presentational - Gains/Losses = IC statement If Functional is NOT = Presentational - Gains/Losses are recorded in OCI

Question 107

The components of the lease receivable for a lessor involved in a direct financing lease

Answer 107

Minimum Lease Payments + Unguaranteed residual value accruing to the benefit of the lessor

Question 108

When collection of sales price is NOT reasonably assured and revenue recognition is deferred - use

Answer 108

Installment Sales Method - Revenue recognized as collections are made Cost Recovery Method no profit is recognized on sale UNTIL all cost have been recovered

Question 109

Required FS for nongovernmental VHMO and ONFPO include:

Answer 109

Statement of Financial Position (Bal Sht) Statement of Activities (Inc. Statement) Statement of Cash Flows Statement of Functional Expense (Required for VHWO - VOLUNTARY for ONFPO)

Question 110

A note receivable bearing a reasonable interest rate is sold to a bank with recourse. At the date of the discounting transaction, the notes receivable discounted account should be:

Answer 110

INCREASED BY THE FACE AMOUNT OF THE NOTE A contingent Liability exist therefore the notes receivable discounted account must be INCREASED by the face amount of the note.

Question 111

Governmental accounting - Statement of Cash Flows

Answer 111

Presented for PROPRIETARY FUNDS and GOVERNMENTAL Entities engaged in business type activities.

Question 112

ONFP FS | Statement of Cash Flows

Answer 112

Operating * Cash Revenues less cash expenses * Unrestricted Contributions/Pledges * Unrestricted interest/dividends received Investing * Buy or sell investment * PPE * Buy or sell works of Art Financing * Borrow or pay debt principal * Contributions restricted for LT purposes * Interest/ Dividends restricted for LT purposes

Question 113

FASB ACS 480 10 25 14 requires this type of obligation must be considered a liability if any one of the conditions is true.

Answer 113

A Fixed Monetary Amount Known at inception Variations in something other than the FV of the issuers equity share Variations inversely related to changes in the FV of the issuer's equity share

Question 114

Young & Jamison's modified cash-basis financial statements indicate cash paid for operating expenses of $150,000, end-of-year prepaid expenses of $15,000, and accrued liabilities of $25,000. At the beginning of the year, Young & Jamison had prepaid expenses of $10,000, while accrued liabilities were $5,000. If cash paid for operating expenses is converted to accrual-basis operating expenses, what would be the amount of operating expenses?

Answer 114

In converting expenses from a cash basis to an accrual basis, a prepaid expense increase of $5,000 must be deducted because it is an expense on a cash basis and an asset on an accrual basis. An increase of $20,000 in accrued liabilities must be added because it is an expense incurred but not paid. $150,000 - $5,000 + $20,000 = $165,000

Question 115

The FASB has jurisdiction over entities with which of the following characteristics? Body corporate and politic Exempt from federal taxation Body corporate and politic or exempt from federal taxation Power to enact and enforce a tax levy

Answer 115

Exempt from federal taxation. corporate bodies and politic and entities with the power to enact and enforce a tax levy are governments. Not-for-profit organizations that are not governmental are exempt from federal taxation.