CPAExcel Flashcards
1
Q
What is the role of the Financial Accounting Advisory Council (FASAC)?
A
The FASAC provides guidance on major policy issues, project priorities, and formation of task forces.
2
Q
What topics does the Financial Accounting Standards Board (FASB) Accounting Standards Codification not include?
A
- Other comprehensive basis of accounting;
- Cash basis;
- Income tax basis;
- Regulatory accounting principles.
3
Q
How are assets presented on the balance sheet?
A
Assets are presented in order of decreasing liquidity. The most liquid assets (such as cash) are shown first, and less liquid assets are shown last (such as property, plant and equipment).
4
Q
What is the highest structure of the Financial Accounting Standards Board (FASB) Accounting Standards Codification?
A
The highest structure is areas.
5
Q
What is Verifiability?
A
Information is verifiable if different knowledgeable and independent observers can reach similar conclusions.
6
Q
What does it mean to be free from material error?
A
Information is free from material error if it is accurate and truthful.
7
Q
What is the concept of capital maintenance?
A
Capital is said to be maintained when the firm has positive earnings for the year, assuming no charges in price levels.
8
Q
What does the matching principle state?
A
Recognize expenses only when expenditures help to produce revenues.
9
Q
Define cost effectiveness.
A
This constraint on Generally Accepted Accounting Principles (GAAP) limits recognition and disclosure if the cost of providing the information exceeds its benefit.
10
Q
What is Conservatism?
A
Conservatism (also called prudence) is the reporting of less optimistic amounts (lower income, net assets) under conditions of uncertainty of when Generally Accepted Accounting Principles (GAAP) provides a choice from among recognition or measurement methods.
11
Q
For purposes of the fair value definition, what are the assumed characteristics of market participants?
A
Buyers and sellers that are:
- Independent of the reporting entity;
- Acting in their economic best interest;
- Knowledgeable of the asset of liability and the transaction involved;
- Able and willing, but not compelled, to transact for the asset or liability.
12
Q
What are the three valuation techniques (or approaches) that should be used in determining fair value for Generally Accepted Accounting Principles purposes?
A
- Market approach;
- Income approach;
- Cost approach.
13
Q
List the situations where the entry price may not be the exit price.
A
- The transaction if between related parties;
- The transaction occurs when the seller is under duress;
- The unit of account included in the transaction price is different from the unit of account that would be used to measure at fair value;
- The market in which the transaction price occurred is different from the market in which the asset would be sold for the liability transferred.
14
Q
What are the three levels of the fair value hierarchy and what does each consist of?
A
Level 1: highest level, are unadjusted quoted prices in active markets for assets and liabilities identical to those being valued.
Level 2: are observable for assets or liabilities, either directly of indirectly, other than quoted prices described in Level 1.
Level 3: lowest level, are unobservable and used to determine fair value only if observable inputs are not available.
15
Q
Distinguish between assets and liabilities measured at fair value on a recurring basis and nonrecurring basis.
A
Assets and liabilities measured at fair value on recurring basis are adjusted to fair value period after period. Assets and liabilities measured at fair value on the nonrecurring basis are adjusted to fair value at the time of a particular event (e.g., significant modification of debt).
16
Q
What significant fair value disclosures are required only in annual statements?
A
The methods and significant assumptions used to estimate fair value.
17
Q
What is the third objective of the International Financial Reporting Standards (IFRS) Foundation?
A
To take into account the special needs of a range of sizes and types of entities in diverse economic settings.
18
Q
Is IFRS more rules based or principle based?
A
Principle based.
19
Q
True or False: Income may be realized or unrealized.
A
True.
20
Q
Does the Securities and exchange Commission (SEC) have legal authority to prescribe accounting standards to public companies?
A
Yes, it has that authority.
21
Q
Define “Financial Reporting Releases (FRR)”
A
Formal pronouncements that rank the highest in authority for public companies.
22
Q
Does the Sarbanes-Oxley Act allow auditors to complete non-audit services for clients?
A
No, the Sarbanes-Oxley Act does not allow this.
23
Q
How are current assets listed on the balance sheet?
A
Declining order of liquidity.
24
Q
What are the steps of the accounting cycle?
A
(1) Analyze source documents, (2) Post to ledger, (3) Make adjusting entries, (4)Prepare trial balance, (5) prepare income statement, balance sheet, and cash flow statements, (6) Close temporary accounts.
25
What do control accounts report?
The aggregate balance of several subsidiary accounts.
26
What is the order of income statement presentation?
1. Income from Continuing operations;
2. Income from Discontinued Operations (net of tax);3. Extraordinary Items (net of tax);
4. Net Income.
27
Define gains.
Increases in equity or net assets from peripheral or incidental transactions.
28
Are extraordinary items allowed in International Financial Reporting Standards (IFRS)?
No, extraordinary items are not allowed.
29
What is net income plus or minus other components of comprehensive income?
Comprehensive income.
30
How are accounts listed in the vertical format?
They are listed in separate columns.
31
What is the indirect method on the statement of cash flows?
Reconciles net income to cash flows from operating activities.
32
When is a Statement of Cash Flows required?
For all business enterprises that report both financial position (Balance Sheet) and results of operations (Income Statement) for a period.
33
Where are non-cash investing and financing activities reported?
They are reported on the face of the Statement of Cash Flows or as a separate disclosure.
34
what is the cash flow category of principal payments on short-term and long-term loans (from financial institutions or dealers) made to acquire plant assets?
The category is Financing.
35
Using indirect method for reporting cash flows from operations, should a decrease in inventory be added to or subtracted from accrual based net income?
A decrease in inventory should be added.
36
Using the indirect method for reporting cash flows from operation, should a decrease in unearned revenue be added to or subtracted form accrual based net income?
A decrease in unearned revenue should be subtracted.
37
What is a development stage enterprise?
An enterprise placing substantially all its efforts into establishment of new business.
38
What is financial statement ratio analysis?
The development of quantitative relationships between various elements of a firm's financial statements.
39
List the debt to equity ratio formula.
Total Liabilities / Total Shareholder's Equity.
40
List the common stock yield formula.
Dividend per Common Share / Market Price per Common Share.
41
What are the mandatory exceptions for retrospective application of International Financial Reporting Standards (IFRS)?
Derecognition of financial assets and liabilities; hedge accounting; assets held for sale and discontinued operations; certain aspect of accounting for non-controlling interest, and use of certain estimates.
42
When does the "first reporting date" happen?
The year-end date for the period for which International Financial Reporting Standards (IFRS) is first applied.
43
Describe a modified cash basis of accounting.
A modified cash basis of accounting results from adjustments made to cash basis accounting. Specifically, while most items continue to be accounted for using the cash basis, some items are accounted for using the accrual basis. As a consequence, the financial statements reflect accounts and amounts based on a combination of the cash basis and the accrual basis.
44
Identify some bases of accounting that are not an "other comprehensive basis of accounting."
1. Accounting based on U.S. Generally Accepted Accounting Principles (GAAP);
2. Accounting based on the unique provisions of a loan agreement;
3. Accounting based on the unique provisions of a acquisition agreement.
45
Describe special-purpose financial presentation that may be consistent of inconsistent with GAAP.
~Financial statements presented on a prescribed basis resulting in a incomplete presentation, but otherwise consistent with GAAP; or
~Financial statements prepared on a basis of accounting prescribed in an agreement, not in conformity with GAAP or other comprehensive basis of accounting.
46
Identify the statements included in a set of personal financial statements.
A set of person financial statements would include:
1. A statement of financial condition (balance sheet);
2. A statement of changes in net worth.
47
How should a significant interest in a separate business be shown in a person statement of financial condition?
As a single line item at the estimated current fair value of the net assets, separate from other assets.
48
In what order should liabilities be shown in a personal statement of financial condition?
In order of maturity, with no distinction as to current/non-current classifications.
49
What are the various types of generally accepted accounting principles which may be used by a U.S. entity?
Depending on the entity, the following types of generally accepted accounting principles may be used:
1. U.S. Generally Accepted Accounting Principles (GAAP);
2. U.S. Other Comprehensive Basis Accounting (OCBOA);
3. International Financial Reporting Standards (IFRS);
4. IFRS for Small and Medium-sized Entities (SMEs).
50
Identify some of the possible advantages of using IFRS for SMEs, instead of U.S. GAAP, by eligible entities.
1. More relevant standards;
2. Less complicated and voluminous standards;
3. Less costly standards to implement;
4. Less frequent changes in standards.
51
What other name is used for customer accounts receivable?
Trade Receivable.
52
What do we call the (1) marker and (2) holder of a note?
(1) Marker is the buyer or borrower.
| (2) the holder is the seller of lender.
53
Describe a transaction without recourse.
Transferor is not responsible for nonpayment on the part of the maker of the receivable.
54
What is the accounting treatment when factoring with recourse, as accounted for as a loan?
The transferor maintains the receivables on its books and records a loan and interest expense over the term of the agreement.
55
When does loan impairment occur?
When the creditor believes the loan payments actually to be received have a lower fair value than under the original agreement.
56
What merchandise is included in ending inventory?
All owned inventory, regardless of location.
57
List the weighted average cost per unit formula.
Cost of goods available for sale/number of units available for sale.
58
What cost flow assumption is the same for both the periodic and perpetual systems?
First In First Out (FIFO).
59
What is the main reason for using Last In First Out (LIFO) in periods of rising costs?
Tax minimization.
60
Why would an entity utilize Dollar Valued (DV) last In First Out (LIFO)?
Reduces the effort of the LIFO Liquidation.
61
How is the cost of ending inventory determined?
Determined by applying on of the four cost flow assumptions.
62
List the margin on Cost formula.
(Sales-Cost of Goods Sold) / Cost of Goods Sold.
63
What are Net Markdowns?
A net decrease in the original selling price.
64
What is the cost/retail numerator?
Net purchases at cost.
65
List the basis inventory equation.
Beginning inventory + net purchases = ending inventory + cost of goods sold.
66
What is the required accounting for a potential loss on a Purchase Commitment when the commitment can be modified?
The loss is required to be footnoted as a contingent liability, but is not accrued in the accounts because the loss is not probable given that the contract can be revised.
67
Under International Financial Reporting Standards (IFRS), is Inventory reported at lower cost or market or at lower of cost net realizable value?
Lower of cost or net realizable value.
68
List the requirements for inclusion in plant assets.
~Currently used in operations;
~Have a useful life extending beyond one year;
~Have a physical substance.
69
List the general rules on costs to capitalize.
~Cash equivalent price;
| ~get ready costs.
70
How is the cash equivalent price in the issuance of securities determined?
In fair value of assets acquired or of securities issued, whichever can be most clearly determined.
71
When are unpaid construction input costs included in Average Accumulated Expenditures (AAE)?
Not until cash is paid.
72
If Average Accumulated expenditures (AAE) > total interest bearing debt, what is interest expense for the period?
All interest cost is capitalized and there is no reported interest expense for the period.
73
How do we calculate depreciation based on service hours?
~Depreciation rate X service hours used;
| ~Depreciation rate = (Cost-salvage value) / estimated hours.
74
What depreciation method does not use salvage value?
Double declining balance.
75
What costs are included in the full costing method for exploration costs?
All costs of exploring for the resource are capitalized to the natural resources account.
76
What happens during the reset method?
Accumulated depreciation is reset to zero by closing it to the building account, and then the building is adjusted for the revaluation.
77
Identify the three possible levels of influence over an investee for accounting purposes.
1. Not significant;
2. Significant influence, but not control; and
3. Control.
78
At what cost are held-to-maturity securities carried and reported?
At amortized cost.
79
How do we account for the transfer of an investment from held-for-trading to held-to-maturity or available-for-sale?
1. Credit Trading at recorded fair value;
2. Debit held-to-maturity or available-for-sale at current fair value;
3. Recognize unrealized holding gain/ loss in net income.
80
What are the categories of investments under International Financial reporting Standards (IFRS) No. 9?
Under IFRS No. 9 two categories of investments (and other financial assets) include:
1. Debt investments measured at amortized cost;
2. All other investments, including debt instruments not at amortized cost and all equity investments.
81
Identify the three major equity method items recognized each period by an investor.
1. Recognize investor's share of investee's net income/loss;
2. Recognize investor's share of investee's dividends declared;
3. Recognize adjustments to share of investee's net income/loss for "depreciation/amortization" of amount allocated to excess of fair value over book value.
82
List the journal entry for a Investor to recognize proportionate share of investee income using the Equity method.
DR: Investment in X
| CR: Investment (equity) revenue
83
In what forms may a joint venture be established?
1. By agreement or contract alone;
2. As a corporation;
3. as a partnership;
4. as an undivided interest entity.
84
What are the Acceptable methods (models) for measuring and reporting investment property?
The cost method (model) and the fair value method (model). An entity may use only one of these methods to measure and report all of its investment property.
85
List the types of intangibles
Marketing related, Customer Related, Artistic related, contract related, technology related, Goodwill.
86
Provide examples of the class of assets can you carry at fair market value under IFRS?
Property, plant, and equipment; identifiable intangible assets; financial assets including investments and financial instruments.
87
What do liabilities represent?
Represent outsider claims to firm's assets or are enforceable claims for services to be rendered by the firm.
88
Define sales taxes payable.
Account recognized for sales tax collected from customers.
89
How is the change in the deferred revenue account calculated for a period?
Cash received during period less revenue earned for the period.
90
What Amount of revenue is recognized for a period for an extended warranty when total warranty costs are estimable?
The total amount received for the extended warranty multiplied by the fraction: warranty costs incurred for the period divided by the estimated warranty cost to be incurred.
91
Define interest-bearing note payable.
A note in which interest element is explicitly stated.
92
How is the total interest expense recognized on a noninterest-bearing note?
Total payments less amount borrowed.
93
When are bonds sold at a premium?
When state rate > market rate.
94
What is the length of a bond term when bonds are issued between interest dates?
Period of time from issuance date maturity date.
95
How is interest expenses on the current line of an effective interest bond amortized schedule computed?
Multiply one-half the yield rate at date of issuance by the book value of the bond issue on the line above the current line.
96
What amount is allocated to owner's equity on issuance of convertible bonds that can be settled in cash?
Issuance price less the present value of the bonds using the prevailing rate on similar bonds.
97
What is the purpose of detachable stock warrants?
To increase marketability of bond issue.
98
How does an entity prove intent to refinance short-term obligations?
Must be proven, possibly in the form of board of director's meeting minutes.
99
When is retirement of debt considered extraordinary?
When the "unusual and infrequent" criteria of Accounting Principles Board (APB) Opinion 30 apply.
100
How is the loss on the early retirement of bonds computed?
Cash paid less book value of bonds retired plus unamortized bond issue costs.
101
A subsequent event that did not exist at the balance sheet date requires what kind of disclosure?
Footnote disclosure.
102
What authoritative body has jurisdiction over private not-for-profit organizations?
Financial Accounting Standards Board (FASB).
103
List the four broad categories of not-for-profit organizations.
1. Hospitals and other health care entities;
2. Colleges and Universities;
3. Voluntary Health and Welfare Organizations;
4. Other not-for-profit organizations.
104
What is the net asset category where expenses are recognized?
Unrestricted net assets.
105
List the two sub-classifications of expenditures for supporting services within a not-for-profit organization.
1. Management and General;
| 2. Fund Raising.
106
List the two broad classifications for expenditures within a not-for-profit organization.
1. Program Services;
| 2. Supporting Services.
107
List the three categories of a not-for-profit organization's Net Assets.
1. Unrestricted;
2. temporarily Restricted;
3. Permanently Restricted.
108
List three financial statements that are required for all private not-for-profit organizations.
1. Statement of Financial Position;
2. Statement of Activity;
3. Statement of Cash Flows.
109
When is an implied time restriction recognized?
An implied time restriction can be restriction can be recognized on donated long-lived depreciable assets.
110
When are contribution of services recognized?
Recognized is the services require special skills, the person providing the services possess those skills, and the services would have been purchased if not obtained by donation.
111
Define endowments.
Contributions to the organization from third parties for which the principal (corpus) must "remain intact in perpetuity."
112
Define term endowments.
Gifts and bequests from third parties which are to be retained and invested for a period of time or until a specific event occurs, but after the criterion has been met, the full amount can be spent.
113
List the three conditions that must be met in order for assets to be classified as a "collectible."
1. Held for public exhibition, education, or research rather than financial gain;
2. Protected, kept unencumbered, cared for, and preserved;
3. subject to a policy that requires proceeds from sales of collection items to be used to acquire other items for collections.
114
How are special event revenue and direct costs reported?
Reported at their gross amounts. Costs to promote the event are reported as part of fund-raising.
115
What Value is used to record donated capital assets?
Fair market value at the date donations.
116
What is the journal entry to record receipt of $100,000 in pledges when it is estimated that 20% of the pledges will be uncollectible?
DR: Pledges Receivable $100,000
CR: Est. Uncollectible Pledges $20,000
CR: Contribution (Revenue) $80,000
117
Define capitation fees.
Payments to health care providers for comprehensive client coverage provided for a fixed fee; e.g., HMOs.
118
Define patient service revenues.
Gross charges for direct patient care.
119
List the net asset categories for a not-for-profit hospital.
1. Unrestricted;
2. temporarily Restricted;
3. Permanently Restricted.
120
Is charity care recognized in the financial statements of a not-for-profit hospital?
It is not recognized as revenues, receivables, or bad debt in the financial statements of a not-for-profit hospital.
121
List the financial statements required by a no-for-profit hospital.
1. Balance Sheet;
2. Statement of Operations;
3. Statement of Cash Flows.
122
List the net asset categories used by a private university.
1. Unrestricted;
2. temporarily Restricted;
3. Permanently Restricted.
123
List the net asset categories used by a public university.
1. Unrestricted;
2. Restricted;
3. Invested in capital assets, net or related debt.
124
How is tuition revenue reported?
Reported net tuition discounts and scholarships in the operating statement.
125
Define auxiliary enterprises.
Activities carried on by an educational institution that are not directly related to the delivery of instruction (i.e., residence halls, dining services, athletics).
126
What is the authoritative body for state and local government?
Government Accounting Standards Board (GASB).
127
What is the authoritative body for not-for-profit organizations?
Financial Accounting Standards Board (FASB).
128
List the two types of proprietary funds.
1. Enterprise Funds;
| 2. Internal Service Funds.
129
What is the measurement focus basis of accounting for proprietary fund types?
Accrual accounting: Flow of economic resources.
130
What is the measurement focus basis of accounting for governmental fund types?
Modified accrual: Flow of current expendable financial resources.
131
is the normal balance of estimated revenues account a credit or a debit?
It is a debit.
132
What budgetary account represents the estimated dollar value of outstanding orders?
Encumbrances account.
133
True or False: Restricted, committed, or assigned fund balance amounts should report positive amounts.
True. These fund balances should not report negative amounts.
134
where do you find Positive Unassigned Fund Balance?
This balance is found only in the General Fund
135
What funds are included in the Governmental Activities column on the Government-wide Statements?
All Governmental Funds (General, Special Revenue, Debt Service, Capital Project, and Permanent Funds) plus the Internal Services Funds.
136
What funds are included in the Business-type Activities column on the Government-wide Statements?
Enterprise Funds.
137
What funds are reported in a separate column in the fund level financial statements for governmental fund types?
Major funds.
138
What criteria are used to determine a major fund?
10% of total assets, liabilities, revenues, or expenditures/expenses of the total for all funds in that fund type and at least 5% for the same element for all governmental and enterprise funds combine.
139
What is the primary function of the debt service fund?
Payment of interest and principal on general long-term debt.
140
Describe the proprietary fund entry to record interfold sale of goods.
DR: Due from XXX
| CR: Revenues (or Billings to Depts.)
141
What is the principal revenue of an Internal Service Fund?
Fees charged to internal users.
142
What funds are used to account for any resources managed in trust by the governmental entity where the beneficiaries are outside of the governmental entity itself?
Private Purpose Trust Funds.
143
What equity account is used by Pension Trust Funds?
Net Assets Held in Trust for Pension Benefits.
144
When should component units be blended with primary government?
If the component unit is, in substance, a part of the primary government (e.g., the principal beneficiary of the component units services is the primary government), it should be blended.
145
Define component units.
Legally separate organizations:
1. Which are fiscally dependent on the primary government; OR
2. For which the primary government appoints a coting majority of the Component Unit's governing board and either: (1) the primary government is financially accountable for the component unit; or (2) it would be misleading or incomplete to exclude the component unit from the primary government's financial statements.
146
What is the account name for long-term interfund receivables?
Advances to XXX.
147
Under government accounting, what is the Modified Approach?
An alternative to depreciation of infrastructure assets based on maintaining the conduction of infrastructure assets.
148
How are pension expenditures in governmental fund financial statements recognized?
Recognized on the modified accrual accounting basis of accounting and should be equal to the amount expected to be liquidated with expendable available financial resources.
149
True or False: Sales tax is an example of a derived tax revenue that is based on an underlying exchange.
This is a true statement.
150
List the three stages for internally generated software development.
1. Preliminary project stage;
2. Application development stage;
3. Post-implementation/operation stage.
151
Define debt covenant compliance.
Steps taken by debtor to meet the restriction and reporting such compliance.
152
List the items represented in Owner's Equity.
1. A record of past investments by owners;
| 2. A record of the amount of net income that has not been distributed as dividends.
153
How is the number of shares outstanding determined?
The number of shares currently held by stockholders.
154
How is stock issued for nonmonetary consideration valued?
Fair value of stock or consideration, whichever is more reliable.
155
For what amount is Preferred Stock Additional Paid in Capital debited when called or redeemed?
Amount recorded from original issuance.
156
Define scrip dividend.
A special form of note payable whereby a corporation commits to paying a dividend at some later date because the firm does not have the cash at the date of declaration to pay the dividend but wants to assure the shareholders that the dividend is forthcoming.
157
What dividends can owners of preferred stock receive?
Preferred stock may receive dividends in addition to the annual current dividend.
158
Define restrictions on retained earnings.
An external constraint placed on a certain portion of retained earnings by an external party.
159
What is the effect of a quasi-reorganization on total owners' equity?
Decrease in total owners' equity.
160
True or False: the installment sales basis is a version of the cash basis of accounting.
This is a true statement.
161
List the difference between cost recovery and installment method.
No gross profit is recognized for cost recovery method until all costs have been recovered.
162
What is the effect of billing a customer on net assets?
There is no effect.
163
What is the percentage of completion of a project when an overall loss on the contract is expected?
Same as usual; total cost to date divided by total estimated project cost.
164
What basis of accounting is used for recognizing expense for compensated absences?
The basis is accrual.
165
List the conditions under which the accrual of a liability for postemployment benefits are necessary.
1. When the benefits meet the four criteria of "Accounting for Compensated Absences;" also
2. When the benefits not meet those four criteria, then "Accounting for Contingencies" is followed.
166
What is the largest in magnitude in terms of postretirement benefit costs?
Postretirement healthcare coverage.
167
How is compensation expense determined after a change in estimated forfeitures?
Compensation expense in period of change is the amount resulting in total compensation through the period of change that equals the fraction of service period elapsed multiplied by the new estimate of total compensation expense.
168
Describe the general approach to recognizing compensation expense for a performance option plan.
At the end of each period, recomputed total compensation expense based on performance level expected to be achieved. Recognize compensation expense for the period in the amount that results in total compensation through the period equaling the fraction of service period elapsed multiplied by the new estimate of total compensation expense.
169
What type of account is credited when periodic compensation expense is recognized?
The account credited is Liability.
170
Define income tax expense.
The account reported in the income statement that measures the income tax cost for the year's transactions.
171
How are deferred tax accounts reported on the balance sheet?
Current and liabilities are netted.
| Noncurrent assets and liabilities are netted.
172
What percentage is used for determining realization of a deferred tax asset?
Fifty percent used.
173
What account is credited when a net operating loss is recognized?
Income tax benefit.
174
What effect does income tax benefit have on income for financial reporting?
The effect of income tax benefit is an Increase.
175
True of False: The total of all deferred tax assets and deferred tax liabilities are not required to be disclosed.
False. Total of all deferred tax assets and deferred tax liabilities are required to be disclosed.
176
List the three types of accounting changes.
1. Change in accounting principle;
2. Change in accounting estimate;
3. Change in reporting entity.
177
What is the amount recorded for the change in deferred taxes for a change in accounting principle?
The pretax cumulative effect multiplied by the tax rate.
178
What is the rationale for applying the prospective method to estimate changes?
The new information triggering the change is not applicable to prior years.
179
Define "counterbalancing error."
An error whose on retained earnings automatically corrects itself after a number of years.
180
What amount does the asset retirement obligation increase to over time?
The final amount expected to be paid.
181
Define "parent company" as it relates to business combinations.
Designation of the Investor in a business combination.
182
Define measurement period.
The period after the acquisition date during which the acquirer may adjust any provisional amounts recorded at the acquisition date. It provides the acquirer reasonable time to obtain information needed to identify and measure accounts and amounts that existed as of the acquisition date. It ends when the acquirer obtains that information or determines that no additional information is available, but in no case should it exceed one year.
183
Identify at least three items acquired in a business combination for which the acquirer has to make a decision as to the classification or designation of the item.
1. Investments, as to whether held-to-maturity, held-for-trading, or available for sale;
2. Derivative instruments, as to whether used for hedging of speculation;
3. Embedded derivatives, as to whether they will be separated from the host instrument or not;
4. Long-term assets, as to whether they will be used or held for sale.
184
Under what conditions will a bargain purchase be recognized in a business combination?
A bargain purchase is recognized when the fair value of the total investment in an acquiree (both in the investment of the acquirer and that of any non controlling interest) is less than the fair value of the acquiree's net assets.
185
What assets or liabilities recognized in a business combination require "specialized" post-combination accounting treatments?
1. Required rights asset;
2. Assets and liabilities arising from contingencies;
3. Indemnification assets;
4. Contingent consideration as asset or liability (or equity).
186
When provisional amount for a business combination are reported in financial statements, when must be disclosed about those amounts?
1. Identification of the item (assets, liabilities, equity or consideration) for which accounting is not complete;
2. The reasons why the accounting is not finalized;
3. The nature and amounts of any measurement period adjustments made to the provisional amounts during the reporting period.
187
What method is used to record a merger/consolidation?
Acquisition Method.
188
Under IFRS, are you required to disclose assumptions related to acquired contingences?
Yes, you are required to disclose these assumptions.
189
List the methods a parent may use to carry investment in subsidiary to be consolidated.
1. Cost;
2. Equity;
3. Any other method it chooses.
190
Where will a non controlling interest account show in consolidated financial statements?
On Consolidated Balance Sheet as a separate item within Shareholders' Equity.
191
What are the possible accounting methods a parent can use to carry on its books an investment in a subsidiary that will be consolidated?
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The parent can use:
1. Cost method;
2. Equity method;
3. Any other method it chooses.
Whatever method it uses, the investment account will be eliminated on the consolidating worksheet. (Only the cost and equity methods have been used on prior exams.)
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192
Under what conditions will a bargain purchase gain be recognized by a parent?
When, at acquisition, the fair value of subsidiary's identifiable net assets is greater than the investment value to acquire those net assets.
Investment value is the parent's investment cost plus the fair value of any noncontrolling interest in the subsidiary.
193
What are the only types of transactions recognized for consolidation?
Transactions with non-affiliates.
194
What are the accounts (on a consolidating worksheet) that may be affected by an intercompany inventory transaction?
1. Sales/Purchases;
2. Net income/loss;
3. Ending Inventory;
4. Beginning Inventory.
195
If not eliminated, what effect will the intercompany sale of a fixed asset at a gain have on the reported value of the fixed asset for consolidated statement purposes?
Unless the appropriate eliminating entry is made, the intercompany sale of a fixed asset at a gain will result in a overstatement of the value of the fixed asset on consolidated financial statements.
196
What determines the amount of any net gain or loss resulting from bonds becoming intercompany?
The sum or difference between the premium or discount on the bond investment ( of the buying affiliate) and the premium or discount on the bonds payable (of the issuing affiliate).
Gain would result from eliminating: 1. Premium on Bond Payable or 2. Discount on Investment.
Loss would result from eliminating: 1. Discount on Bond Payable or 2. Premium on Investment.
197
What are two objective differences between U.S. Generally Accepted Account Principles (GAAP) and International Financial Reporting Standards (IFRS) in determining control?
Under U.S. GAAP only outstanding coting rights are used to measure control; under IFRS securities currently exercisable or convertible into voting rights are used in assessing control. Under U.S. GAAP only if an entity has more that 50% voting ownership cant it have control. Under IFRS an entity may have control even when it does not have more than 50% voting control.
198
What is the main difference in the preparation of the financial statements between consolidating financial statements are combining financial statements?
In consolidating financial statements, the investment accounts of the parent company in the other companies being consolidated are eliminated against the parent's percentage ownership of the equity of those companies. In combining financial statements, any investment one combining company has in another combining company is eliminated against the owned company's equity in the amount of the investment, not the amount of percentage ownership. Therefore, there can be no difference between the dollar amount of the investment and the dollar amount of the equity eliminated.
199
Under International Financial Reporting Standards (IFRS), how is an impairment of a financial asset determined and reported?
Under IFRS, an impairment loss is determined as the difference between the carrying amount of the asset and its receivable amount. The amount of any impairment loss is recognized in current income.
200
What must be disclosed about each significant concentration of credit risk?
1. Information about the common activity, region, or economic characteristic that identifies the concentration;
2. The maximum (gross) amount of loss due to the credit risk;
3. The entity's policy of requiring collateral or other security to support financial instruments subject to credit risk;
4. The entity's policy of entering into master netting arrangements to reduce the credit risk associated withe financial instruments.
201
What is the purpose of a hedge of a foreign-currency-denominated investment classified as available-for-sale?
Offsets the risk of exchange rate changes on a foreign-currency-denominated investment in securities classified as available-for-sale.
202
Why might an entity need to translate financial statements expressed in foreign currency?
Translation may be needed to:
1. Apply the equity method of accounting to investee;
2. Prepare combined financial statements;
3. Prepare consolidate financial statements.
203
What exchange rate or rates should be used to translate (not remeasure) asset and liability accounts from one currency to another currency?
The spot exchange rate (closing rate) as of the balance sheet date.
204
What is the name of the method used when financial statements are measured?
Conversion Method Used to Convert Accounts from Foreign Currency Units to Dollars.
205
What is the recoverable amount under IFRS?
The higher of the fair value less the cost to sell of the assets value in use.
206
What is a cash generating unit?
The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups.
207
What are permanent declines in inventory?
Inventory declines that are not expected to reverse in the current year.
208
Describe the overall guideline for interim reporting under U.S. accounting standards.
Integral view. Interim periods are an integral part of the annual period.
209
List the two classifications of capital leases for the lessor.
1. Direct Financing;
| 2. Sales-Type.
210
How is the reported balance of lease receivable under the gross method computed?
Sum of remaining lease payments.
211
List the international lease capitalization criterion involving magnitude of present value of lease payments.
Capitalize if the present value of lease payments is substantially all of the asset's fair value.
212
What is the accounting treatment of contingent rentals?
Record as revenue (lessor or expense (lessee) in period of occurrence.
213
Is a lessee guarantee of residual included in the minimum lease payments of both parties?
Yes, it is included.
214
What amount is capitalized by a lessee when the lessee guarantees residual value at the end of the term?
Sum of present value of lease payments and present value of guaranteed amount.
215
Describe the general rule regarding deferral of gain in a sale-leaseback for a capital lease.
The Seller/Lessee will record the gain as an asset valuation allowance account (contra to the leased asset), and amortize the deferred gain over the lease term by reducing the recorded depreciation expense.
216
how is an obligation to issue shares of a fixed dollar value valued?
The fixed dollar value agreed upon by the parties.
217
When do you use list price?
List price should not be used for fair value-list prices because they are notoriously inflated.
218
When gain is evident and cash is received, what is the accounting treatment?
The gain is recognized in proportion to the amount of cash received.
219
Under International Financial Reporting Standards (IFRS), how are gains and losses recognized in barter transactions?
Gains or losses are determined by reference to a non-barter transaction.
220
What is the general rule regarding research and development (R&D) costs?
Expense costs as incurred.
221
Which items should be included in disclosures about risk due to certain significant estimates?
1. Estimate affected;
2. Nature of uncertainty;
3. Effect of change in estimate on Financial Statements.
222
Describe the identifiable asset test for operating segments.
The operating segment's identifiable assets are 10% or more of the combined assets of all reported operating segments.
223
Describe the straight-line method of accounting for software.
Book value at the beginning of year / number of years remaining in product sales life at beginning of year.
224
List the conditions under which an "unrecognized firm commitment" exists.
When an entity enters in a contract to buy or sell but has not yet booked the transaction.
