Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FAR2 > CPAexcel & FFA Content > Flashcards

CPAexcel & FFA Content Flashcards

1
Q

What are the major areas in the Financial Accounting Standards Board (FASB) Accounting Standards Codification?

A

General Principles 100; Presentation 200; Assets 300; Liabilities 400; Equity 500; Revenue 600; Expenses 700; Broad Transactions 800; Industry 900

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the role of the Financial Accounting Foundation (FAF)?

A

The FAF exercises oversight of the Financial Accounting Standards Board (FASB), and appoints members and ensures funding.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the final 3 steps in the standard setting process?

A
  1. Evaluate research and comments from interested parties and issue an exposure draft; 2. Solicit additional comments; 3. Finalize new accounting guidance and issue Accounting Standards Update (ASU).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the Accounting Principles Board?

A

The entity that established thirty-one opinions, some of which are now part of the Codification.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the purpose of the FASB Accounting Standards Codification?

A

The FASB Codification is the sole source of authoritative U.S. GAAP for nongovernmental entities, except for the SEC guidance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the purpose of the Statement of Cash Flows?

A

To explain the change in cash and cash equivalents during the last year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How are assets presented on the Balance Sheet?

A

In order of decreasing liquidity, with the most liquid assets listed first and least liquid assets (PP&E) shown last.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How are liabilities presented on the Balance Sheet?

A

In order of maturity. Current/Short-Term to Long-Term.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Where and how are prior period adjustments shown?

A

Statement of Retained Earnings as adjustments to the beginning balance of retained earnings in the year that the error is discovered.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the qualitative characteristics of financial information?

A

In order to be useful, financial information must be relevant & faithful (representation). Relevant: holds confirmatory/predictive value, material Faithful: reliable - complete, neutral, free from material error

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the secondary, or enhancing, qualitative characteristics of financial information?

A

Comparability, Verifiability, Timeliness, Understandability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the constraint to setting accounting standards?

A

Cost-benefit: if the cost exceeds the benefit, recognition and disclosure may be limited.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the elements of a PV Measurement that fully captures economic differences?

A
  1. Estimate of future cash flows 2. Expectations about variations in amount or timing of those cash flows. 3. Time value of money - measured by risk-free rate of interest 4. Price of the risk 5. Any other factors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What four criteria must be met for recognition and measurement in a financial report?

A

The element must be defined, measurable, relevant, and reliable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

The FASB has maintained that:

A

New GAAP should be neutral and not favor any particular reporting objective. One of the objectives of the FASB in setting standards is to develop rules that are unbiased. FASB statements generally do not reflect any reporting bias.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Which instruments are not eligible for the fair value option under ASC 820?

A
  1. Investment in a sub that is to be consolidated (vs. equity accounting/significant influence, which IS allowed) 2. Interest in a VIE that is to be consolidated 3. Pension or other post-retirement benefit plans 4. Financial assets and liabilities recognized under lease accounting 5. Demand deposit liabilities of financial institutions 6. Financial instruments classified by the issuer as a component of Shareholder’s Equity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are the valuation techniques listed under ASC 820, Fair Value Measurement?

A

Income Approach (Discounted $ Flow), Cost Approach (amount required to replace the service capacity of an asset), and Market Approach

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How is the change in valuation approach used to determine fair value treated in the financials? How would the amount of the change in fair value be reported?

A

This is considered a change in estimate and any amount resulting from the change would be reported in current income (income from continuing operations).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Can a parent company elect to report investments held to maturity at fair value for subs, even if the sub has elected to report the same investment at amortized cost?

A

Yes. If the sub’s financials are consolidated into the parent, the initial reporting election is irrelevant to the consolidated reporting and the parent may opt to report all HTM investments at FV, regardless.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Under US GAAP, do the disclosure requirements vary for a certain asset/liability classification?

A

Yes; disclosure requirements vary for asset/liabilities that are measured either on a recurring (investments) or non-recurring basis (an asset impairment).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

When must the methods and significant assumptions used to estimate fair value be disclosed?

A

The methods/significant assumptions used to estimate fair value must be disclosed only in annual reports. All other disclosures (e.g. management’s reasons for election, any reasons for partial election, etc.) related to fair value measurement are required to appear in both interim and annual reports.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How does the SEC define a foreign private issuer?

A

~SEC Rule 205~ A foreign issuer is any foreign issuer other than a foreign government, UNLESS: 1) More than 50% of outstanding voting securities are directly or indirectly owned by residents of the U.S. and (1 of the following) 2) The issuer’s business is principally administered in the U.S.; more than 50% of the assets are located in the U.S.; or the majority of executive officers or directors are U.S. citizens or residents.

23
Q

What is the SEC’s definition of a security?

A

Any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest, or other instrument commonly known as a ‘security’ or any certificate of interest or right to subscribe to or purchase any of the foregoing.

24
Q

What is the difference in the regulations of the 1933 Securities Act and the 1934 Securities Act?

A

The ‘33 Act requires the initial registration of any securities offered in a public market as well as a Proxy Statement be provided before each shareholder meeting. The ‘34 Act regulates securities trading after issuance and provides the requirements for periodic reporting and disclosures.

25
Q

How are cash equivalents treated in the Statement of Cash Flows?

A

Since the purchase of a cash equivalent has no effect on the total of cash and cash equivalents as the transaction decreases cash and increases the cash equivalent account, this type of exchange is not reported in the Statement of Cash Flows.

26
Q

How are G/L’s reported in the Statement of Cash Flows?

A

Gains are adjusted out of operating activities and (generally) into the investing activities section by subtracting the effect from net income. Losses are adjusted out of the operating activities section and (generally) into investing by adding their effects to net income.

27
Q

Define Gross Profit.

A

Sales - COGS

28
Q

What are the components of Comprehensive Income?

A

Net Income Unrealized G/L on AFS Securities Foreign Currency Translation Adjustments (as opposed to Foreign Currency Transaction items, which are IS items) Unrecognized G/L on Pension Benefits Deferred G/L on certain Hedging Transactions

29
Q

Where does U.S. GAAP require for-profit companies to report OCI and its components for a period?

A

When a full set of general purpose financial statements is presented, U.S. GAAP requires that OCI and its components be presented either as a separate Statement of Comprehensive Income or combined with the Income Statement for a “Statement of Net Income and Comprehensive Income.”

30
Q

What are the IASB’s due process procedures?

A
  1. Add item to Working Agenda 2. Discuss the issue 3. Prepare the Discussion Paper 4. Publish the Discussion Paper 5. Issue the Exposure Draft 6. Analyze comments to the Exposure Draft 7. Issue the IFRS
31
Q

What is the difference between the direct and indirect method of reporting on the Statement of Cash Flows?

A

The only section that differs when electing either the direct or indirect method is the operating activities section. The indirect method presents cash flows by reconciling Net Income to the amount of cash used or provided by Operating Activities, while the direct method presents cash inflows and outflows based on the generating source (‘received by’) and payment recipient (‘paid to’). The direct method still requires reconciliation to the Net Income figure. As such, nearly all businesses use the indirect method.

32
Q

What is the SEC’s rule-making process?

A
  1. Concept Release 2. Rule Proposal 3. Rule Adoption
33
Q

Are costs associated with shipping to customers (freight out) included in COGS?

A

No. These are selling costs not included in COGS.

34
Q

Which inventory costing method will provide the lowest ending inventory balance when product lines are subject to specific price increases?

A

During a period where prices are increasing, a LIFO method will provide a lower ending inventory balance. The dollar value LIFO method uses layers priced with specific indexes for each year that a layer is added.

35
Q

What is the formula for determining Dollar Value LIFO?

A

This method is based on price level changes for specific inventories, and the formula is: Price Index (often provided) = EI in CY $s / EI in Base Year $

36
Q

When should the market rate interest be recorded for a Note Payable (vs. the stated rate)?

A

When the stated rate is materially different from the market rate, the market rate should be used. E.G. If the market rate is higher than the stated rate, a discount will be recorded and amortized over the life of the loan. If the stated rate is higher than the market rate, a premium is recorded and amortized.

37
Q

The LCM Rule for inventories may applied to total inventory, groups of similar items, or to individual items. Which of these results in the lowest inventory amount?

A

When LCM is applied to each individual item, the lowest overall inventory amount is achieved because market will not exceed cost.

38
Q

What are the accepted methods of revenue recognition for construction contracts per U.S. GAAP?

A

U.S. GAAP permits the completed contract and percentage of completion methods.

39
Q

What revenue recognition methods are permitted for construction contracts under IFRS?

A

IFRS requires that the Percentage of Completion Method be used to calculate revenue for construction contracts, unless the final outcome of the project cannot be reliably estimated - in this case, the Cost Recovery Method is required. (*Completed Contract method is not permitted*)

40
Q

What is the process of revenue recognition under the Percentage of Completion Method for construction contracts?

A
  1. Compute GP of contract: Contract Price - Est. Total Cost =GP
  2. % of Completion: Total cost to date/Est. Total Cost
  3. GP Earned: GP * % Completed (step 2)
  4. GP Earned for CY: GPE @ CY - Beginning GPE

–>Estimated losses are recognized immediately in the year discovered.

41
Q

How does the CIP account function for Percentage of Completion and Completed Contract methods of revenue recognition?

A
42
Q

What is the process of revenue recognition under the Installment Sales Method?

A

When there is no reasonable basis of estimating collectibility:

  1. Determine GP: Sale-COGS=Total GP
  2. GP %: GP/Sale on Installment
  3. GP Earned: Sale-Ending AR=Collections*GP%
  4. Deferred GP: Ending Installment AR * GP%
43
Q

How must an organization accrue for vacation and sick pay per U.S. GAAP?

A

Vacation and any compensation that is more than likely to be paid out (cash) must be accrued. Compensation for sick days (provided there is no payout) is not required to be accrued, even if the provisions allow for indefinite carryover, since illness cannot be predicted.

44
Q

What is the difference between Accumulated Benefit Obligation (ABO) and Projected Benefit Obligation (PBO)?

A

The only difference between these two estimates is that the PBO uses an actuarial assumption to determine the liability based on estimated future salaries, years of service, etc., where the ABO projects the liability using current figures. The ABO is not an estimate of the total amount of compensation to be paid to EE’s.

45
Q

What is the purpose of the following aspects of accounting for pension G/L’s:

  1. Corridor Amortization
  2. G/L Cancel
  3. Spreading the amount subject to amtz over remaining service period(s)
  4. Use of expected return on plan assets
A

Each of these aspects contributes to the reduction of volatility of reported pension expense.

46
Q

Define Prior Service Cost

A

The cost of benefits based on past service granted for:

  • Retroactive credit for employees’ prior service when the plan is implemented
  • Subsequent plan amendments

This component increases PBO in the period of initiation or amendment and should amortized to pension expense over the service period of affected EE’s.

47
Q

What are the components of Net Periodic Pension Cost (aka Pension Expense)?

A

SIRAGE:

Current SERVICE Cost

INTEREST Cost

AMTZ. of Prior Service Cost

or Losses

Amortization of EXISTING Net Obligation/Asset

48
Q

What is the correct treatment of PSC for defined benefit pension plans under IFRS?

A

The vested portion of PSC, at PV, is immediately recognized in Pension Expense for the period. This recognition also affects earnings. The unvested portion is amortized to the expense over time.

49
Q

What is the formula to determine Working Capital?

A

Current Assets - Current Liabilities

Used to determine that a company has enough short term assets to cover short term debt.

50
Q

What is the acid test ratio?

A

This ratio is a variation of the current ratio, excluding inventory and other assets considered not so readily liquid:

Cash, Net AR, Certain Investments / Current Liabilities

51
Q

Define Credit Risk (or risk of accounting loss on trade receivables).

A

The risk of loss resulting from not collecting amounts due on credit sales, and the total amount of loss an organization would suffer if amounts owed weren’t paid. It is the net carrying value of the account.

52
Q

Define off balance sheet risk.

A

The amount of risk that is not reported in the balance sheet. With regard to AR, there is no off balance sheet risk because the account is reported there.

53
Q

Under the Allowance Method, what is the effect of a write-off of a specific account?

A

The entry to write off an account under the Allowance Method decreases both the Allowance and AR accounts; there is no effect on Net Income, Current Assets are not affected, but Gross AR does change:

DR Allowance XX

CR AR XX

FAR2 (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions